Sir Martin Sorrell on Cannes Lions, regional structures, consolidations and more

WPP CEO SirMartin Sorrell spoke to Storyboard’s Pavni Mittal in the south of France. In a candid conversation, Sir Martin discussed how Cannes Lions had broadened a bit too far, the impact of the Iraq situation on advertising, why regional marketing structures may be nearing their end, and the secret behind the success of WPP’s Indian operations.

Watch and read the interview…

Storyboard: How many years have you been coming to Cannes for, Sir Martin?

Sir Martin: Definitely more than I care to admit, but it must be about seven to eight years? I never used to come before, because it was a very narrow, French event run by Roger Hatchuel until he sold it to Terry Savage and EMAP. It has now been broadened too far and has too much sizzle and not enough steak. The content, in terms of insight and value-add, needs focus. Somehow, it is now about whose boat is bigger than somebody else’s or whose act is bigger than somebody else’s. This isn’t what it should be about.

Storyboard: WPP has been sending delegates to Cannes year after year, which is a lot of money and investment. Why is it important?

Sir Martin: This is the Oscars of the advertising industry; it is like going to Los Angeles or Hollywood in the context of the industry and of course we should celebrate that. I think that’s a wonderful thing to do for our clients and people. It is very good that clients and our people are increasingly engaging with Cannes, too. Technology and the media have become a part of Cannes; the festival has become more like a sea.

Another good thing is the addition of Healthcare, as a preamble to Cannes. A number of people didn’t agree with that, but that has been corrected; next year Healthcare will become a part of the Cannes Lions. I understand that the data visualization will be included next year, too. That is great news too, because our XYZ qualifiable revenues for Cannes are actually the smallest of the top three - if you take out Kantar which constitutes 25% of our revenues, then our revenues for Cannes are smaller than Omnicom or maybe Publicis.

Cannes is becoming broader - I think technology, data, healthcare are all good signals. Having said that, I still think it is too much of a sizzle and should focus more on the insight or content, in the sense of real meat. People need to be able to go away saying ‘I learnt something’. This has become too much like Davos or the CES.

Storyboard: Will we see more focused events like WPP Stream?

Sir Martin: As long as they are WPP events, sure! I think Stream is really good, although it isn’t an Unconference here. Stream came out of an Israeli Kibbutz and an idea Yossi Vardi, an Israeli internet entrepreneur had. My wife was present at the event and said it was an interesting concept. The Kinnernet was born from that discussion, from which came the Unconference.

So what is an Unconference? You go to a conference, you have a white board and you decide what you want to talk about. You decide if you want to talk about Google hiring extremely high-level executives from P&G, GSK, Unilever and what is behind it. You can sit down and lead a discussion for an hour. Why should someone have a Solomonic point of view on why you should come to a conference? You should be able to decide that.

It is a crowdsourced conference, sponsored by the technology companies - CBS, Google, Facebook, Yahoo! and the likes are sponsoring and participating in it. We had about $50 billion in Cannes on media spends represented amongst the CMOs that were a part of it.

Content of that nature, whether it is pre-programmed or whether it is an Unconference, is really more meaningful. That is the key we should focus on.

Storyboard: You said that brands will do away with regional marketing structures…

Sir Martin: No, I said that organizations, not brands. A powerpoint slide I use to explain this shows the ‘global’ arrow going up, the ‘regional’ arrow going down and the ’local’ arrow is going up. We have been writing about this in the annual reports for many years now - we see 4-5 very big clients starting to say they want a leaner, more active, energetic but more powerful centre with more local emphasis.

Coca Cola, for instance, operates in 220 countries, while we operate in 110. With all due respect, it is impossible for someone in Atlanta or London to know everything that is going on in India, for instance. Ranjan Kapur is our India manager, and while his role has no authority, he has the responsibility to find the best people and acquisitions at the right prices. Last, but not the least, we work with very good local clients who are going to become the regional, multi-national clients. You possibly can’t know all of these things at the center.

A number of these clients have also been saying that regional offices act like a buffer; they have the power to say no, but not the power to say yes. BRIC countries need to be taken out of the regional structures and have them as direct reports because they are such big, important countries. That reduces the size of the region and makes them much more manageable.

The unfortunate bit is that we treat India, with its 1.2 billion people and China with its 1.3 billion, the same way as we would treat Greece or Portugal. This makes no sense.

Storyboard: Another thing you said was, “Clients put pressures on cost to get to their numbers is difficult. The result of that is what is driving more consolidation.” Could you elaborate on this?

Sir Martin: It is a lot of unintended consequences - clients want choice in selection of agencies. They probably want bigger, smaller or medium-sized agencies. I am not complaining about it, except stating fact. Post-Lehmann in 2008, growth is sub-trend. India, the BRICs and the Next 11 aren’t growing as fast as they used to. They are still faster-growth than slow growth markets. India and Brazil, for us, this year are up by 6-7%. Both cases are surprising, especially because India faced an election.

Storyboard: Are you relieved to see the result of the election, considering you said you were afraid of a coalition government?

Sir Martin: I thought a more decisive result is better, considering more coalitions result in indecisiveness with all the bargains and the compromises. With Brazil facing an election and is hosting a World Cup, but we are 6-7% is still strong. Compare this with China where we were flat in the first quarter, had a strong April and not-so-strong May. Then there is also Russia that was affected by Crimea and the Ukraine. The fundamental point is that the topline growth isn’t as much as people would like.

In order to get to their targets, clients have had to cut costs and put pressure on costs. As a result of that, there is procurement pressure on the agencies that comes in the form of pricing, payment terms, etc. This results in agencies feeling the heat with smaller agencies not being as successful as they used to be. Larger agencies consolidate more; the consolidation will continue.

Storyboard: After the Publicis-Omnicom Group (POG) merger collapse, in what form will we see consolidation?

Sir Martin: There are two possibilities. We never thought that POG was a glint in John (Wren) or Maurice’s (Levy) eyes, but it was. God knows what else is happening here! This time last year, John was climbing the back stairs of the Carlton Hotel to see Maurice secretly, and maybe that is the part of the problem. The two of them tried to negotiate this deal with no expensive advisors and it showed.

Again, I want to say two things. I think it is inevitable Dentsu will buy IPG, but I could be wrong. I also think Havas will become a part of Vivendi. I would try to switch my stake in Havas into Vivendi which is a much bigger company and have 10% of Vivendi instead of 5 or 6%.

It would be slightly difficult considering it would be a media owner owning an agency, so there is a clear conflict issue. Maybe it is an issue that will be accepted in France. We will continue to do what we did in Vietnam yesterday, in South Africa with the Hardy Boys and with Kantar. We did about 50-60 transactions in the last week. It has an impact on our revenues by about 2-3%. We are growing organically at about 4% at the net sales level. It’s 7-8% of growth at the revenue level with acquisitions being pre-currency. The companies that have big positions like we do in India, Brazil, South Africa or Russia have the biggest impact.

Storyboard: What are the next six months going to be like for WPP, in light of the situation in Iraq?

Sir Martin: This is a really good question. We tended to focus on the BRICs’ hard-soft landings, the Eurozone, the strength of the US economies are the sort of issues we call the Grey Swans or the Known Unknowns. The Black Swans are the Unknown Unknowns.

In Davos, it was the Sino-Japanese spat over the islands. Then followed Crimea and now we have Iraq. Tony Blair said they were predictable, but those not as intelligent as him couldn’t predict them. The big issue from the economic point of view is the issue of tapering. Cheap money has to turn into expensive money at some point in time. That’s what triggered the devaluation in the fast growth market. The honest answer is that tapering makes clients even more cautious.

The average life of a CEO is about 4-6 years and that too puts pressure on costs.

Storyboard: You will be in India in about 2 months for BrandZ. What is the agenda for that?

Sir Martin: I will be, as usual, kicking the tires. India is doing very well against the market and e must be gaining significant share there. We have strengthened the business this year, considerably. We had a good year last year, too. I have said this a 100 times before and I will say it again - if our people outside India were half as good as the ones in India, I could have retired and wouldn’t even bother to be at Cannes. I would have retired to a beach a long time ago!

Our business is exceptional, but as all systems go, we always have our challenges, but that is what we are here to do.

Storyboard: What is your current biggest challenge in India?

Sir Martin: Making sure we continue to grow. We had competitors trying to snap at our heels, making ill-judged acquisitions. The chickens are coming home to roost, I am delighted to say. If you are running a weak business in India but are running a global business, the logic one uses is ‘I’ll over pay here’ or ‘I’ll structure it poorly here’ because it doesn’t matter in the context of things. But when you start to do it across four different places the chickens do come home to roost.

The truth is that we have been very lucky. JWT had a big operation in India when we acquired them in 1987. Same was the case with Ogilvy when we acquired them in 1989, and with Y&R, Grey and everything else. IMRB, too, is an outstanding business.

I don’t mean business and revenues when I say ‘we are doing very well’; it is about the outstanding people. It is, after all, where we invest 60% of our revenue. That is the secret to our success in India. The biggest challenge is to be strong and keep it that way.

Ours is a very competitive industry despite people presenting themselves in a very positive way. We have highly competent competitors; I wish they were totally incompetent. They do some amateur things sometimes, but by and large it is a very competitive space.