Martin Sorrell sat down with PRWeek editor-in-chief Julia Hood to talk about mergers, servicing accounts across agency brands, procurement, and staying focused.
Hood: What is your outlook for the PR industry in 2004?
Sorrell: One hopes that PR follows the same direction as everything else. We had high hopes, following the recession in the late 1980s and early 1990s, that PR, because it had become more specialized, would be insulated. Unfortunately, that was not the case. I'm not clever enough to figure out why. It may have to do with the fact that PR - a lot of my colleagues get very upset when I say this - is less global, I think, in terms of budget setting and budget monitoring than advertising or branding and identity, or even market research.
So it may be that because it's more local, and because budget decisions are made at a more local level. When corporate headquarters decides to cut back, it has an impact at a
But in 2004, I would hope that things would be better. I don't think you'll see a return, thankfully, to 2000. And I say thankfully because, clearly, things
were overheated then.
Hood: Are PR firms operating as better, more efficient businesses then before the downturn?
Sorrell: I think so in every business area, we don't like the rise of the procurement function inside our clients, but there's nothing we can do about it. You can't fight it; you have to go with it. It makes life more difficult, more uncomfortable, more challenging. But that goes with the territory. Our clients are in much more competitive environments, and a lot of them are dealing with price compression, particularly in a low inflationary environment, significantly greater than what we've had to deal with. Whatever the situation is, the pressure on cost and efficiencies is not going to go away, it will continue.
Hood: Is PR more or less vulnerable to the procurement process?
Sorrell: I think because the budgets are probably local, and probably smaller, what catches procurement's eye is the advertising area. In any client's profit-and-loss or income statement, expenditure on advertising can be one of the biggest items, so procurement is obviously focused on that.
In the case of public relations, these are smaller budgets and can sometimes get less attention. Though that's probably not the case now as with greater consolidation, people are looking at marketing services as a whole, in a broader way than they have historically.
Hood: How have the expectations of parent companies changed the way PR agencies do business?
Sorrell: People when they are taking a cheap shot will say the parent companies or holding companies are focused entirely on returns and margins. But you don't get returns and margins magically out of thin air. It comes from hiring good people, developing and training them, and they do good work for clients, and you make your margins. Someone once said the most profitable time of an agency is when you shut it - the last 30 or 90 days. But you haven't got anything after that. We're trying to build brands in the long term.
I think the PR business is an interesting business, conceptually. It's a very important part of the marketing mix for our clients. I don't think it's always been particularly well-run. I think that probably there's been too many people - in the structures, I think there's been too many people in the middle. If you look at the consulting-company structures or the investment-banking structures, [they have the] big producers at the top, and then a lot of arms and legs, a lot of soldiers.
It's getting the structure right that is terribly important, getting the efficiencies right, doing things in the most effective way. Clients want the big ideas, and then they want them implemented. So I think having the senior people and the junior people and making the structures more efficient is very important.
Hood: What else is important for the agency business?
Sorrell: Focus is important. What has tended to happen is that these businesses have become too big and too sprawling. You can see that through some of the consolidations that have taken place. I'm not just talking about public relations here, but also advertising and design, all of the consolidations I have seen. I can think of one exception, but I can't remember another situation where the merging of two agencies has worked. You've got conflicts with clients, conflicts with people, which just totally removes the reason for doing the thing in the first place.
The other fundamental weakness in the thinking is, you've got two weak businesses, and you think by merging two weak businesses you make them into one strong business, but all you do is make one bigger, weaker business.
What you have to do is start from the fundamentals - you get the right people in the right place, doing things as best they can, and it will work. Slamming things together doesn't work. If I look back to our businesses, even some of our PR businesses, people have become obsessed with mergers, amalgamations, footprints.
Hood: PR professionals talk about wanting greater relevance in the marketing mix.
Sorrell: All the research I've seen says that editorial publicity is better than paid-for publicity. Editorial publicity is more effective. If you can convince the editor, or someone who's writing an article that your company knows what it's doing, that will be more effective than "I bought an ad in your learned journal to say my company knows what it's doing." Hence there's a great discussion over whether product placement is a good thing, or sponsorship, or the blurring of advertising with editorial - so-called advertorials. These are a matter of great debate in the marketplace, in terms of the consumption of the media.
Hood: What do you think of recent examples where large companies have been asking holding companies to pitch their "best of breed" capabilities across agency brands to service their accounts?
Sorrell: I think that makes sense. If you take the healthcare area, we have superb talent in that area, and I can see why it makes sense for companies to think about that. The issue is what has been called the "super agencies" and where it gets very dangerous is when you can forget the importance of your brands. Because there are no economies of scale in our business, there are probably diseconomies of scale, with the exception of media buying. Clients, by and large think that the bigger an agency gets the worse it gets.
So, WPP, I can argue, is 15 major businesses, stretching from businesses with 20 people in it to businesses with 12,000 people in it. So there are great differences and I think maintaining those differences is terribly important. Some people are starting to make major mistakes - and you can already see that - in consolidating their businesses, either from a perception point of view or a physical point of view. The reasons for the so-called parent companies, one is the diseconomy of scale, and two is to manage conflict. Bringing them all together has the risk of first aggregating diseconomies of scale, and removing or not dealing with the issue of conflict.
Hood: What would you like to see your individual PR brands embrace in terms of innovation next year?
Sorrell: More focus, less dilution. More specialization. I still think if we know more about a topic, we will succeed. I think it's organization. Having fewer, better people at the top, and bringing in better young people who can do the implementation and learn the business over time. Not running away from the procurement issue; it's a fact of everyday life. But I'd be less concerned about scale and more concerned about quality.
-----Martin Sorrell is CEO of marketing group WPP, which owns Ogilvy PR, Burson-Marsteller, Hill & Knowlton, Cohn & Wolfe, and Robinson Lerer & Montgomery.