Martin Sorrell – We’re in trouble
March 31, 2009
Martin Sorrell, CEO of advertising agency WPP Group plc told a packed auditorium Tuesday at confab MIPTV that the sky is falling. He stated that he fears that all these online advertising agencies and their lower overhead coupled with the recession will eat into his bottom line and force massive changes at WPP group plc. Hollywood is reporting. He must of read this article regarding our opening dating circa 2006 … This guy must be a rocket scientist ..
Parker is right to call him the dwarf… because he really must be clueless to see the reason all these internet only (IE: SEO / SEM / SMO) advertising agencies are getting larger and larger clients.
Recently at our firm we went almost 100% virtual in terms of office space, and went though a process of cost cutting … no not employees… we don’t lay off employees… but things like expensive rent, high cost office phone system.. going virtual will save the company anywhere between $100,000 to a quarter million a year.
Why did we go though this cost cutting measure.. because some of our business is reliant on these less than technically proficient ad agencies that are regularly seen on Adscam, Tribble , Adweek, Adage and Media Bistro / Agency Spy. The smaller agencies we partner with are light-years ahead of the BDA’s that we deal with.
Yes, I cut costs because of firms *like* WPP group plc, and my fear that firms run with that level of “Mad Men” circa 1968 technology is what is scheduling their doom.
I myself did this because honestly I don’t trust some of these advertising agencies. Is this biting the hand that feeds me? Not really… because I fully expect that to dry up anyway.. because I don’t think they will make it though this recession. You can’t push out half million dollar websites without meta tags .. and expect to be in business for too long..
The problem is the “safe bet” isn’t so safe anymore… Those types of agencies never invested in what the client wants… and that is the root of the problem.
A few decades ago, no one ever got fired for hiring IBM … now people get regularly fired for hiring IBM… because the costs are just too high for what is delivered… sounds familiar?
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I was there…and I had the last laugh.
I work for a recently aquired wpp company. we don’t work with out of data 1968 technology instead where at the for front of the industry. As for you guy’s hating on the wpp group all the time, maybe some things do need shifting around but change in a company as large as this doesn’t happen over night and you won’t be laughing once the changes are complete. you’ll all be back to square one, trying to think of another way to beat wpp.
“you won’t be laughing once the changes are complete.”
Sure we won’t… we already have seen the changes… thousands of layoffs… firing programmers…. 10 year leases for 3 year contracts…. “agency of the future” Dell set to fire Enfatico….. No SEO skillset.. no social media skillset… clients leaving like no tomorrow…
You have a freaking accountant running an ad agency.. what did you expect?
well said Andrew & Founder ;-)
May I…
We are already in a recession and, in the past, CEOs made serious mistakes in trying to cope with a slowing economy.
Here is a list of What Not To Do.
All of them hurt innovation. Unless you really want to compete on price the ability to do sustained innovation is the one competitive edge left.
Innovation is the driver of performance, growth and stock market valuation.
Here are the 10 worst mistakes you can make in a recession that will hurt innovation:
1) Fire talent.
Investments in talent are expensed, not capitalized, so cutting back on people, especially really smart, high-priced people, is a quick way to cut costs. The accounting rules only hurt companies who follow them. Talent is the single most important variable in innovation.
2) Cut back on technology.
Xerox and others report that companies are already curbing investments in technology to save money. Banks especially. The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This means big money spent on IT.
3) Reduce Risk.
Innovation requires taking chances and dealing with failure. Recessions push managers to be more conservative. They need to fight this instinct.
4) Stop New Product Development.
Saving money often means cutting back on new products and services during an economic downturn. This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers.
5) Boards Replace Growth-Oriented CEOs with Cost-Cutting CEOs.
Sudden declines in revenues and profits often leads boards of directors to search for managers with experience in pinching pennies. That’s what appeared to happen recently happened at Bang & Olufsen. Boards forget that most recessions last only two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don’t have the skills to grow, when growth returns.
6) Companies Retreat From Globalization.
It’s expensive to expand globally and managers often save money by cutting back on emerging markets. It’s a big mistake. Emerging markets are sources of new revenue, business models, and talent.
7) CEOs Replace Innovation As Key Strategy.
By turning defensive, top managers take innovation off the top of the official agenda and replace it with systems management and squeezing costs. The entire organization follows. It is extremely hard to reverse this when growth returns.
8) Performance Metrics Are Changed.
To Save money and cut costs, managers shift employee evaluations away from rewarding riskier new projects toward sustaining safer older goals. Risk-averse behavior follows. Again, this is hard to change.
9) Hierarchy Is Reinforced Over Collaboration.
Sudden drops in revenue and profit often lead companies to panic and mobilize to stem the decline. The need for fast decision-making often leads to a return to command-and-control management. This alienates creative-class employees, young Gen Y and Xers and stops the evolution of corporation organization toward a flat, collaborative, open source model.
10) Retreat Into Walled Castles.
Cutting back on outside consultancies is seen as a quick way to save money. Yet one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants. They know what companies across a broad range of industries around the world are doing to promote change. Not receiving this information can hurt a company’s global competitive position.
Winners always emerge out of recessions and they almost always beat their competition on the basis of something new.
Apple for example worked on iTunes, iPod and its retail stores during the last recession and came out swinging once growth returned to destroy its competition. Apple didn’t make any of the top 10 innovation mistakes.
WPP shouldn’t either.
Here’s an alternate perspective to this very interesting discussion:
Martin Sorrell figured out a long time ago that the traditional agency model (JWT, Ogilvy, Y&R, etc.) was dying. He recognized long ago that the future was in businesses that addressed marketers’ needs, i.e. digital marketing in all its flavors and variants. So… he went out and acquired many, many digital marketing businesses – from site/ecommerce development to search to email marketing companies.
So why is he in the trouble he’s in?
Simple.
He underestimated the disproportionate influence of the leadership of his traditional agency brands. CEO’s of these ad agencies never ever figured out a way to leverage these digital resources into the solutions they provided their clients. They continued to focus on hot creative for TV & print. That’s all they know, and the people they surrounded themselves with. Worse… they perpetrated a cultural environment that is irrelevant and out of touch.
As a result, these newly acquired digital agencies, stayed in their little silos – getting none of the distribution leverage that the holding company represents.
Martin Sorrell should do what Obama just did. Fire the CEO’s of their traditional agencies. Orchestrate a reverse management take-over of the traditional agencies by the leadership teams of their digital agencies.
Easily said, but hard to implement. But it’s the only way forward. Try it with one of the brands, in a relatively low-risk market. But do it quickly… and then roll out the solution globally.
By way of credentials… I’ve run one of Martin’s agencies in a previous life. I’ve run digital agencies. I’ve worked in technology & private equity.
Isau Hispansaroff — that is perhaps the best line of thought that I have seen in a long time….
To The Founder & Isau Hispansaroff
Totaly agree with both of you, on all perspectives…
Thanks Founder & Andrew.
Recently, I attended 2 agency pitches in my role as a Board Director of a software company. This software company was in the process of selecting an agency for brand development, customer acquisition & retention programs. Their customers were medium and large businesses.
Here are some things that I found stunning:
1. Both agencies presented TV boards
2. Both agencies presented ‘fluffy’ brand ideas with no acquisition component.
3. The token ‘digital’ component was a banner ad – adapted from the print ad
4. No email marketing
5. No Web 2.0 ideas
Comments from the team included things like:
“Social Media doesn’t work.”
“No-one pays attention to email marketing”
“You need to build a brand first before you can do customer acquisition”
The software company decided to appoint an SEM agency who had backward integrated services like creative development, email marketing, social media.
Anecdotally, this is symptomatic of the entire ad industry. They don’t get it. Smaller digital players are eating their lunch, and they don’t even realize it.
Isau,
I think the problem stems from the Rolodex that SEM / SEO and SMO firms have as compared to the ones the big agencies have.
We for example have a bunch of fortune 1000 firms here, the problem is that these accounts were given to us from their agency of record.
We bill the advertising agency for example $1000 (add zeros for whatever the size of the account is) , they turn around and bill the client $6000 (again add zeros for whatever the size of the account is) dollars for our services… and yes the margins are that high for them…
So though the client is getting our work, they are paying 6x the amount we are billing.. to make matters worse we are not allowed to talk to the client directly.. and it’s our understanding that the client doesn’t even know that the agency outsourced it to us…
It’s killing their ROI paying 6x the amount they are supposed to pay.. and we always get the information 2ed hand from the agency… after it’s filtered from someone at the agency that doesn’t know how to read a spreadsheet.
but the funny thing, even paying 6x the amount… they are still showing a very positive ROI.. try that with a TV campaign…
I think the tide has turned. Seldom, if ever, do clients use an agency for SEO/SEM work. They’ve wised up to the fact that they’re getting no added value for the 6X mark-up.
The same applies to web development, RIA development, email marketing and data analytics. Specialist companies, some of them not small any more, have established themselves higher in the pecking order in the client’s organization. The traditional agency is ranked just (barely) above the tea-lady.
Guys, instead of wasting plenty of energy on the question whether traditional or digital communication is better equipped to solve client issues, shouldn’t we in-
vest this energy into getting paid for our work?
To be honest, without agency creativity most companies would have a difficult
time. Just ask yourself how many true innovations you have seen over he last
few years. And i dont talk about red, green, blue variants.
In a complex world simple strategies and powerful creative ideas are more re-levant than ever, independent from which channel they use.
But if we allow client to reduce our value perception to a cost+ model and con-tinue to fight like kids between traditional and digital channels we just continue
to play into companies hands….
And this wont help anyone.