What Makes Martin Sorrell Angry?

The Man
Martin Sorrell, 64, CEO of £ 7.5 billion WPP Group, a global marketing and communications Goliath made up of dozens of companies
His Mission
Competing with or co-opting every trend, technology or competitor that could threaten his global empire
His Big Bets
Expand WPP aggressively through acquisitions, which started back in the late 80’s with the JWT Group and Ogilvy Group
Create innovative structures within WPP to support large global clients, like Enfatico, an integrated agency for Dell
Bees in his Bonnet
The fact that the press and many in the industry are always rooting for the Davids while hoping Goliaths like WPP trip over
That his industry culture is to “nick and steal” talent instead of hiring bright people from colleges and training them
His Vision for India
With a 40% market share, sit pretty, and ramp up the delivery of global production capabilities to WPP companies and clients.

The press loves to hate Martin Sorrell. They hate him for nudging out the creative boutiques that are the antithesis of everything Sorrell stands for in the marketing communication services industry. They accuse him for the decline in the standards of creative work, and for not doing enough to attract high quality talent to the industry. Yet every time Sorrell tries out a new experiment across his vast empire to serve his clients better, the rest of the industry invariably follows suit. Sorrell, head of WPP, the world’s largest communications services group by revenues, met with Forbes India to review some of his recent Big Bets. Excerpts from an exclusive interview:

In December 2007 you won the global mandate to create a new agency from scratch to service Dell. In return for Dell’s commitment to rationalise most of its $4.5 billion marketing and communication business from around 800-850 agencies globally to the new agency, you put in place Enfatico — a new agency that brought creative, media, digital and account management all under the same Profit & Loss. In April this year you were forced to end the Enfatico experiment by folding it back into Y&R Brands. What went wrong?
The prime movers of the Enfatico experiment, the Dell CMO [chief marketing officer, Mark Jarvis] and Casey Jones [Dell’s V-P of Global Marketing] who reported to him, both left Dell. So a lot of the impetus from those two obviously went with them. On the other hand, Erin Nelson, Dell’s current CMO, and others certainly saw the benefits from a dedicated agency. The concept itself, which is an agency tailored to the needs of a specific client, I think is still very relevant and in fact is going to become more relevant. And what clients want is the best resources working on their business, so if you can either from your existing resources or new resources fashion an agency that responds to their specific needs… I mean just think about it logically — it would be better to design an organisation for a client from scratch than to give them something from off the shelf.

Why didn’t Enfatico work then?
Because it’s an extremely difficult thing to do. And the two prime movers behind it left Dell.

So the model is still pretty people dependant then?
The people that took it over after the two prime movers left, Erin and the others, didn’t see the need so sharply to tailor something so individually. They wanted Enfatico to feed off other group resources in a more intense way. So it is part of Y&R Brands, instead of being an isolated brand inside WPP. It probably uses other group resources more aggressively than what was originally intentioned or what people thought was necessary.

But the antipathy that it stirred inside the industry and in the trade press was quite remarkable. The trade press likes Davids, they don’t like Goliaths. Campaign in the UK is a classic example — it is not in Campaign’s interest to have successful big agencies. What they want is successful small agencies, they get their headlines from that. And there’s a natural antipathy to a large group, us or any of the others, coming up with a concept that defeats their purpose or thinking.

We’ve been tracking another of your big bets, the Lenovo marketing hub in Bangalore where O&M has over 100 employees working on global communication projects for the client. But while the number of employees at the hub seems to have gone up slightly, we’re hearing that the hub is losing senior management support from WPP as well as Lenovo. What is the reality?
The first thing I don’t follow at all, there is total support from WPP so that’s nonsense. My understanding is that is again a different concept — it’s a hub doing global activity from one centre. It’s not an easy thing to do. But I think that’s something that will continue to be pursued, and frankly I see more work being done in that way.

You mean at the Lenovo hub, or through such centers in general?
Conceptually. The Lenovo hub and Enfatico are all similar concepts in the sense that what we’re trying to do is provide effectiveness and efficiency in a different way. I do find it extraordinary, the fact that it’s a new concept and a new approach. And everybody’s writing in the trade press all the time about (i) new markets — or they should be… they don’t write about new markets but just focus on their own domestic markets… they have no global antenna at all; (ii) digital — they’re all fascinated by the new things in there, but here you have the established leaders in the industry come along and with different concepts and its regarded as being slightly strange. But there will be more of these things.
It is like if you had told me four-five years ago, “What about these integrated pitches?” When we first did the HSBC pitch, they all laughed, but they all competed and lost out. We’ve had a whole string of them since then, and every single holding company or parent company has moved in that direction. Why? Because clients want a more integrated approach.

Based on your ongoing conversations with clients, especially the big-ticket ones, what do you think is the kind of structure they want for agencies?
It shifts over time. In today’s environment they’re consumed with effectiveness, meaning quality, and efficiency, meaning cost. They are looking for more for less.

You’re an MA in Economics and an MBA from Harvard. In India it’ll be almost impossible for you to hire that sort of a profile into an agency. Why?
Well, that’s not true. We recruit into the Fellowship programme [a three-year rotational programme that recruits graduates or MBAs into WPP before absorbing them into full-time employment in one of the group companies.] We don’t have the resources to cover all the universities. So we cover what we regard as being the leading universities.

Do you cover, for instance, the Indian Institutes of Management?
No, we cover the leading universities and business schools in the UK, US and Western Europe. For the Fellowship programme anybody can apply. The key is as long as the industry rule is “If you need talent, nick it, steal it”, we’ve got a problem. But if the industry rule is that like McKinsey or Goldman Sachs we are going to recruit the best talent, from design schools, art schools, business schools, universities… and spend the time and the money and the investment in training these people. If that changes in our industry, then we will not have a problem.

What’ll it take for that to change?
People’s attitudes will need to change. There is still an anti-intellectual element in our industry. Charles Saatchi [founder of advertising firm Saatchi & Saatchi] said in his book, “You don’t need academic qualifications in this industry.” Well that may be partly true, but all things being equal, I see someone who’s taken the time to go to a good design, art, business school or university or even engineering school… I’d prefer them to someone who didn’t. There is this sort of anti-academic, we haven’t had in agencies like Ogilvy, JWT and Y&R that are in a sense blue-blooded.

So I think it is an issue. Therefore when I started our Fellowship programme my biggest worry was that people would copy us, but the fact is they haven’t. So nicking things, stealing things or people is the way we operate, which ultimately isn’t a good idea and we won’t build a healthy or vibrant business unless we change our attitude.

Clients say they’ve been clamouring for years that agencies aren’t bringing in the best talent to the table. You also admit that the problem is an issue even within agencies.

There’s strategic thinking, lets call it planning. There’s creative execution, and then there is distribution. There are specialist skills required in all these areas. I don’t think you can make a broad generalisation about creative agencies not investing. But if the leader of an agency is doing what you mentioned [in the question], then he or she won’t last very long. Because you have to make those investments.

I do think on the talent side the biggest issue is we don’t consistently recruit people from the best places, and I’m not talking about only India.

So what are you doing at WPP to change that?
I mentor some of our fellows — my mentoree was assigned to me today morning. And we will continue to do that. We have about 100 of them floating about in the business, which I don’t think is enough. I think we have to change otherwise in the long term we will lose out. The war for talent will get more intense with all the demographics going against us, even in a country like India that has this massive young population. But we remain nickers and stealers. (Laughs)

We invest each year, $9 billion in our people.

We spend a $1 billion on property, we spend $350-400 million on fixed capital investments. We spend less time on the $9 billion than we do on the $350 million. Number of times we agonise over buying this computer, or that software. But the human investment that we make is made just like that (snaps this fingers).

We have instituted 360-degree evaluations throughout the company, we do regular succession planning, we do look at the top 300-400 people in the company… but we don’t do enough of it. Goldman invests in people virtually the same as us, 58-59 percent of their revenues while we’re at 57-58-60 percent. Yet they spend eons on evaluating their people, and you know that if you’re at Goldman and you don’t co-operate inside the business with your fellow people, you’re dead.

But isn’t Goldman much more homogenous?
Well, they are uni-branded that’s true, and they’ve grown less through acquisitions than we have, and they’ve been at it longer than we have… not compared to our individual companies, but WPP. So they have that advantage, but it’s inbred. It’s not inbred in our industry, and that has to change.

You’ve used acquisitions to expand your footprint in the digital space very aggressively.
Probably in digital the primary growth has come from [acquisitions], may be it’s 50:50, but organic has been a very strong component.

How successful have you been in cross-pollinating the acquired capabilities into your existing businesses?
They’ve broadly been three buckets. One has been a very strong view that Ogilvy One is one of only two digital interactive agencies that are truly global. And then you have Wunderman and Ogilvy both around $800-900 million each, you’ve got G2 at around $300-350 million and RMG Connect with about $150-200 million. Those four networks you have to continue to grow.

Two is acquisitions such as Blast Radius, VML, Aqua Online or Blue which you graft on to those networks.

The third is standalones like 24/7 Real Media that we’ve merged the search expertise with GroupM, and investments like a JumpTap and Visible Technologies.

But how’re you are taking digital to other group companies that aren’t already focused on the space?
There isn’t a company in the group that doesn’t have some form of digital expertise. There is no company within WPP where digital is zero percent of revenue. There are companies where it is 100 percent, there are companies with 50 percent and those with 25 percent. There are three strategic priorities for us at the global level — new markets, new media and consumer insights. The message is very clear, I mean it might be the wrong message, but it is very clear. So you know what your marching orders are.

Those companies that don’t respond to that, suffer. Not from any action we take but in the marketplace. Because those three things are only an expression of what we believe clients want. If I was running, or trying to run, one of our clients, those are the three areas I would focus on.

After having been spun out, media companies are now aggressively expanding their capabilities and offerings. Meanwhile digitisation will increasingly force advertising, media and digital to work together under the same roof. How will you handle the ensuing conflicts?
Yes, we have those territorial [conflicts], and there have been a couple of articles that have been written on this topic. That’s because the trade press loves to leap on this stuff. We say no. We’ve had a couple of proposals within the group when media companies wanted to set up creative. It is a very blurred line, it’s like saying what is television today, what is Internet-delivered TV, is it TV or is it digital? And the answer is that it’s all becoming blurred.

Yes, but there have been cases of clear, explicit attempts to develop creative services that sit more inside a JWT, Ogilvy, Grey or Y&R than they do in a Mediacom, Maxis, Mediaedge or Mindshare. But join the club, as you are likely to have a group of highly motivated people who are trying to expand their businesses and there is naturally going to be some collision.

And you’re okay with that?
I’m not okay with it. Do I find it fun? No, I don’t like it… but it goes with the territory. The other way is to have everything, like with a McKinsey or a Goldman, within a uni-branded company. But that would be a disaster. If we abandoned all our brands and made ourselves uni-branded, we’d have a nice and efficient system but probably no revenues.

Like all these things it’s a question of balance. I’d rather have strong pillars on which I would put the integration roof than weak pillars and very strong integration on top. I’d rather have the daily struggle of trying to get people to work together, either functionally or geographically, and have strong functions. That is a stronger structure than having an elephantine company where everybody marched to the same brand.

You’ve been pursuing an acquisition-led strategy for over a decade now…
It sort of goes into phases. 1985-90 we were aggressive on the acquisition front, we did JWT in 1987 and Ogilvy in 1989. Then in the 1991-92 you had the recession which was a very tough time. We had nearly a decade, eight years, with no major acquisitions. We were then fairly aggressive in the decade of the new millennium, but I wouldn’t say we were as aggressive as we were between 1985-90. So there’ve been those phases.

Now our organic growth is 0-5 percent, earnings or profit growth of 5-10 percent. With acquisitions we take that to 5-10 percent top line and 10-15 percent bottom line, which are very aggressive numbers at our size, even though we are a medium sized company.

What are you doing within the WPP network to drive more of outcome based pricing for clients rather than the traditional systems of commission?
I watch with some amazement, even some amusement, at articles that talk of the revolutionary incentive-based compensation based on results. Outcome by results has been around for years. What differs is the extent of the payment — the proportion between fixed and variable — and also the way the variable is structured. And we experiment with that all the time.

What percentage of your income do you currently draw as variable?
I don’t know what the exact figure is, but I would guess it to be between 10-15 percent of our total fee income.

You usually have clear targets for most things. So do you want to take the 10-15 percent share somewhere higher?
I think clients would like us to. Counterbalancing that is the fact that the agency has fixed costs, just like the client. It reminds me of the Internet boom and bust when clients said, “Don’t take fees, take equity.”

When the market was going up it was great, but when it went down it collapsed. Should there be shared risks, sure yeah, but we are not in the venture capital business. Some people say our fixed costs are too high, but we’re working on reducing those, streamlining our organisation. We have a massive amount of stuff we can do within the organisation to streamline our effectiveness and efficiency. The client facing organisation remains the same but the back office costs can be reduced.
But could you move to a 100 percent variable compensation, I would say no.

But do you foresee it becoming the mainstream remuneration structure?
Yeah, it’s quite possible that it could become mainstream. Shared results, shared incentives are an easy way of doing it. What happens are a few things — there is more concentration of business. Johnson & Johnson last year undertook one of the biggest consolidations in the industry. Bayer’s is going through one at the moment. As a result of that, you will see more variable compensation. In other words, as the business consolidates, as they are more aligned with the bigger companies, [variable compensation will go up.]

It is now a given that just like China is the global leader in manufacturing outsourcing, India is in the services or knowledge outsourcing space. How is WPP planning to utilise India in that regard?
We just opened the Quasar digital production centre [50 professionals serving 17 countries from Gurgaon], we’re doing a lot of outsourcing in market research. We’re doing a lot in production. Are we doing enough? The answer is no. Should we do more? The answer is yes.

What prevents you?
Often it’s territory, turf and ego; it’s established ways of working. It is changing, quite rapidly. India is not the only place. Latin America offers a great opportunity. Deliver [a global digital production capability for WPP that will work across Asia, Eastern Europe, Latin America and South Africa] is another example of what we’re trying to do. But we’ll go wherever it makes more sense to go, and that answer is shifting all the time. What might be right this year may not be in two-three years.
The other thing that matters is where clients are, and clients shift their centres/countries/cities of excellence quite frequently. That is quite painful for us, because you move with the client to Singapore and then three years later they go to Bangkok and then three years later to Tokyo and three years later to Shanghai. Historically this used to help with costs, but today that may not be the case. It’s not easy.

As part of WPP’s executive bonus scheme, LEAP, you and your senior executives will be paid bonuses (up to $95 million for Sorrell alone) over the next five years based on how well you perform vis-à-vis a set of peers including Ominicom, Publicis and IPG. But you compete for talent from a host of other companies and industries. When it comes to client budgets too you compete with a host of other companies, including consulting and media companies. Google too is in many ways one of your competitors. So is it fair to benchmark yourself only to your own immediate competitor?
The companies we benchmark ourselves are not just our direct competitors, we also benchmark ourselves against research companies [like GfK and Arbitron].

If I was on the compensation committee and evaluating it, which people think I am but I’m not, the fairest benchmark would be that group. There are two things that have happened that has made the media sector unfashionable. The first was the “G” word, that Google was going to eat everybody’s lunch. That still may be the case but fears on that have evaporated quite a bit. As a result the “G” word is being replaced by the “R” word. So having weathered the “G” storm, we’re having to weather the “R” storm, or a mixture of the “G” and the “R”, the “GRrrr” storm is going to take us apart. (Laughs)
The point about LEAP is that it is unique. Publicis has copied it. But we’ve been doing it since the early 90’s. The unique thing about it is it’s just not based on options, which is a “Heads I win, tails you lose” situation. It’s easy if I am Omnicom and on Christmas eve I fire 3,500 people and then I issue options to myself at $25 a share.

A research company pointed out that was a low point in the stock just recently, but no comment from any Omnicom spokesperson. What we do is put our money where our mouths are, in addition we’re locked in for five years at least.

And picking a peer group is difficult. Probably the best comparisons to us would be Omnicom, IPG, Publicis, Havas — particularly if it goes with Aegis and Nielson… but since it’s private, the equivalent of a Nielson. Dentsu is too narrowly based around Japan, so Hakuhodo. You can’t look at one isolated area of expertise.

Warren Buffet pointed out in Berkshire Hathaway’s report years ago, ‘You don’t give the bank an option on your stock at zero cost, so why should you give management?’ Options are nonsense. All you have to do at Omnicom is, the stock was $25 and is now at $38. John Wren had a million options issued to him, so he’s sitting on $13 million of profit in just seven-eight months. All he has to do is stay there. We have to perform, it’s totally different.