PRWeek editor-in-chief Steve Barrett catches up with WPP's CEO and talks awards, integration, convergence, PR, disappointing WPP agency performance, CMOs and technologies, and analogies with British soccer legend Sir Alex Ferguson.
Cannes and integration
Q: “Dumb Ways to Die” [McCann Melbourne's campaign for Metro Trains] has won three Grand Prix at Cannes already [PR, Direct, and Radio – and could win more. What does that say about integration and the way disciplines are becoming mixed up – and how does that impact what you're doing?
A: We've known about that for some time: the fact that at Cannes advertising agencies were winning PR or media awards indicated some degree of confusion, either among the judges or what was going on.
Social means something positive for everybody: PR to advertising to media to design. So these new media touch everything, and that's why it's a bit specious for us to say 34% of our revenue comes from digital.
We're trying to indicate to people how important it's become. It does infuse everything we do. And it's been a big fillip for public relations and public affairs over the years.
I don't know whether that particular campaign signifies that or not, but PR agencies have found it remarkably difficult to win awards here.
There's certainly a technique to winning awards, about how you present, and how you do it, and once they start to learn that, which I think they can easily do – we've seen that with our own agencies this year – agencies that didn't get shortlisted or Lions are now starting to get them. So it's changing. But advertising agencies had a colossal advantage because they knew how judges reacted; they knew how to present; they're very good at presentation anyway.
Q: What does it mean for the agencies when it could have been a media agency, an ad agency, or a PR agency that does the work?
A: There is some disappointment on accreditation for awards. One of our agencies said, “We did that.” But it was the advertising agency that presented it and won and that did make a nonsense of that division, but it's all becoming much more intertwined.
If I look at the McCann ad [“Dumb Ways to Die”] and compare it to the CIA ad last year for Chipotle, it's understandable, a similar sort of thing. Animation, did very well, beautifully shot, very social.
Q: Are your agencies going to be bumping into each other because they're doing the same sort of work - are they all converging?
A: Well they are. You remember that fourth strategic objective of horizontality. If they are bumping into each other, that's great stuff. That's good news, not bad news, because clients want the best people working on their business. They don't care whether they come from a vertical. So they don't care whether they come from JWT, Ogilvy, or Grey, in advertising; or H+K, Burson, Cohn & Wolfe, Ogilvy Public Relations, RLM Finsbury, or Clarion. They don't care, as long as the best people are working on their business and coming up with the best ideas.
Q: How do you think that's going to change WPP over the next five years?
A: Well, we've got these horizontal integrators, 35 people running clients across the whole of WPP, including public relations, public affairs, and everything else.
I can't tell you what it's going to do, what I hope it will do is make people inside the company leverage the knowledge they have in a more effective way for clients. We have 165,000 people in 110 countries. If Hill+Knowlton has 5,000 people, why limit yourself to 5,000 when you've got another 160,000. Even if we're only averagely intelligent, which I don't believe we are, the law of averages would mean there's got to be some really good people out there.
Can they help a client with an opportunity to grow? That's the way it's going - our attachment to the verticals is increasingly going to come under pressure, firstly, through the client integrators, secondly through the country integrators.
We're saying to people sitting in a country, think about the best people. Think about the local companies that are coming up, which could be the multinationals of the future. And think about acquisitions, because we're particularly interested in that.
There's no way anybody sitting at the center, whoever it is, however many people you have, can know what's going on in 110 countries, so it's hopeless. You have to have local knowledge. This is where the balancing act is.
PR's role in marketing communication
Q: Is a lot of this work in what PR would consider its natural space?
A: Well, you have to be a little bit careful about things like that: those boundary lines are becoming more and more fuzzy. You have horizontal teams that work together in a more effective way. For example, for the Brazilian World Cup each of our verticals in advertising, media, public relations, consumer insight, data investment management, branding and identity, healthcare, and digital communications are thinking about the Olympics.
We're in the process of appointing team leaders for sporting organizations as they cut across the whole. We haven't done it for the Brazilian World Cup, but we should have somebody. The weight of spending across the World Cup is colossal. And although it's a temporary client, as you know there won't be another one for four years, there will be a buildup to the next one.
WPP's PR agency performance
Q: Your PR agencies had a disappointing year: 1% down in 2012 and 4% down in Q1 2013.
A: Last year and this year our PR agencies have not done as well as they should do for two reasons. The public affairs business has certainly been under pressure, particularly in places such as Washington because of the election and postponed willingness to deal with issues.
Secondly, these are discretionary businesses. On average, they've been flat. In the fast-growing markets, they're up on a month-by-month basis. In the slow-growth markets, including the US, they're either flat or down.
It is discretionary spending, and when you've got slow growth you try and cut budgets. And the easiest thing to cut is discretionary stuff. It would be the same thing for consumer insight, the same for healthcare, for branding and identity, and public relations. Having said that, the picture is dramatically different if you look at fast-growth markets. In the fast-growth markets where there are funds to support growth spending, it works. So you get a violently different position depending on who you're looking at.
Q: Was Hill+Knowlton's repositioning designed to take it down more of a public affairs/corporate route?
A: No, it was more to go down a research-driven route. In the same way as with Burson and Penn Schoen, you've got that with H+K and Public Strategies. And that data piece is very important.
You could make the argument that we've got it [data] in Kantar anyway, so why do you need it? But having it closely aligned and intertwined with what was happening at H+K is good news and helpful. So there's a data piece to it because you get people to focus on public relations and public affairs issues by focusing on the data.
Q: How disappointing was it to lose Dan Bartlett [US CEO] from Hill+Knowlton?
A: Well, it was disappointing. It was obviously a big opportunity [at Walmart]. Andy [Weitz] is a very good replacement. But it was disappointing. He worked very closely with Jack [Martin]. But he sees it as a very big opportunity to work on Walmart, so we'll see how that goes. It's the old Leslie Dach job, and you can see the attraction of that. But it was disappointing.
Agency performance targets
Q: Do you give new CEOs like Jack [Martin] and Don [Baer] targets?
A: Yeah, they have targets just like everyone else, including me.
Q: So, presumably, they haven't been meeting them, given the results?
A: Yeah, but you're making the assumption that what happens at the top line happens at the bottom line. We disclose the margin, which nobody else does, so you know the degree of profitability, so you may not be quite right on that.
At target, 15% of the OPBT [operating profit before bonuses and taxes] goes in the incentive pool - a maximum of 20%, and there are some super maxes at 25%. So in 2011, it was about 19.5% or 20%, so we were pretty much at max.
In 2012, we got to our targets, we got there ugly. It was about 16.5%, so that tells you in year one that we were pretty much at max (on an average of everybody.) In year two, we were somewhere between target and max, toward the lower end of target.
Our targets are what we call 1 in 10, which is 10% increase in profits and 1% increase in margins as an average for the group. That gives you some idea of where we're performing.
Although we saw top-line pressure for understandable reasons, I don't accept them, but they're understandable. That doesn't mean they had a significant disproportionate effect on the bottom line. And don't forget our incentive plans have 7% of revenues going into variable costs: freelance, consultants, and incentive packages. So we have a considerable buffer. Not just in PR, but also in public affairs and other parts of the business.
Competing with independent firms
Q: Does that make it more difficult to compete with someone like Edelman, which is independent?
A: Well, they would say so. But what comes in goes out.
Q: But they can charge lower prices.
A: Well, they say that. I'm not sure that's true. To talk about prices, you have to talk about costs. You have to talk about incentives. You have to talk about stock and stock ownership, a myriad of things. And just to isolate one variable would be a very unintelligent thing to do.
Q2 PR performance
Q: Can you talk about Q2?
A: April was a stronger month; May went back to the averages. It's in the range of 2% to 3% like for like for the year. We budgeted about 3% for the year. Q1 came in at about 3%. We reported almost 7% revenue growth: 2% to 2.5% organic, a similar amount on acquisitions, and a similar amount on currency because we had a currency tailwind this year.
CMOs purchasing technology
Q: There's a stat everyone quotes from Gartner about the fact CMOs are going to be spending more on technology than CIOs within three years. Is that something you're seeing?
A: We probably originated the stat. We've been talking about “Mad Men and Maths Men” for a long time. You didn't have to go to Gartner for that.
Q: A stat comes up and everyone starts quoting it. Is that one of the reasons behind the acquisitions of Muzy and Fullscreen?
A: We've been investing in digital for years and it's a third of our business. Muzy is different because it's an early stage so we've set up WPP Ventures and Tom Bedacarré, one of the partners at AKQA, is sitting in Silicon Valley so you might as well use his talent and ability.
You've got WPP Digital doing later stage and mid stage; our traditional businesses like H+K, BM, Ogilvy PR, and C&W where we're saying “become more digital,” and you've got the fast-growth digital businesses like Wunderman, Ogilvy One, VML, and AKQA where we're saying “become bigger and more aggressive.”
Then thirdly, let's build things. Like Possible Worldwide, acquire things like Rockfish, and invest in things like Buddy Media or Omniture, SFX, or Fullscreen, or Vice, or whatever it happens to be and then see what we can do.
So it's a tripartite strategy. But that's been our strategy. You know, we've invested in Globant earlier this year, 20% of the company based in Argentina, $100 million in revenue, which is supplying marketing platforms.
We've been focusing on the CIO, on the spaghetti on the back of the television set, for years. It doesn't take a Gartner statistic to bring that to life.
Our client set is increasingly not just the CEO and the CMO, or the head of corporate affairs or public relations, it's also the CPO [chief procurement officer], or the CTO for technology, the CIO for information, and the CFO.
Q: Mondelez International started a Mobile Futures Group where it's linked up brands with startups and is actually doing investments as well.
A: Well clients have been making investments and we've co-invested with lots of clients. Like us, there scrambling to understand an increasingly complex environment. It's mainly the technology companies rather than the FMCGs [CPGs]. Procter & Gamble took a 7% stake in Ocado [British online food retailer] pre-IPO.
So lots of people are wrestling with this. It's difficult. It's very fragmented. It's very supply side driven. It has a lot of VCs, a lot of people who are apparently making money. But our objective is not to do a Buddy Media or an Omniture where we sell out early. That is very nice, but it could have come later because we were learning a lot, an awful lot.
Succession planning and Sir Alex Ferguson analogy
Q: People talk about your succession a lot.
A: Did you read the annual report? We've been saying the same thing for about eight years about succession.
Q: There's another manager who started about 1985 who established a very high-profile empire, Sir Alex Ferguson, who retired this summer. Did you see any analogies in the way he managed his empire and then left it?
A: Well he hired from the outside, or others did.
Q: Did you see any similarities, he built something from nothing?
A: It's not quite the same, because he didn't. That's not to diminish his achievement, which was colossal and unlikely to be equaled. So it's a different situation. He didn't start the club. There was a strong history. The analogy is false in that it would be like somebody coming in after I've gone. That would probably be the more appropriate.
Q: He built a dynasty.
A: He didn't build a dynasty because his success didn't come from the inside. There are people inside our company who can do what I can do, or what I can't do. And then there are people from outside. Most people seem to think a better succession for a company is from the inside rather than the outside, that going outside is a sign of weakness.