Page last updated at 12:03 GMT, Sunday, 15 March 2009

WPP boss Martin Sorrell shares his views

Sir Martin Sorrell, chief executive, WPP
Under Sir Martin Sorrell, WPP has become famously acquisitive
Sir Martin Sorrell is the chief executive of WPP, the company he founded in 1986, which is now the world's largest group of advertising, marketing and communications companies.

Widely regarded as one of the most important figures in his field, he recently joined Evan Davis on Radio 4's business discussion programme The Bottom Line.

He shared his vision about the future of advertising, the benefits of scale, why tough love means you sometimes have to bite the bullet and reduce your headcount, and how long the present financial crisis may last.

HOW ADVERTISING IS CHANGING

I think the terms "advertising" is a misnomer. We talk about advertising and marketing services and it's a trillion dollar industry of which advertising's about $500bn and marketing services are $500bn - market research, public relations, public affairs, new media and the like.

If I look at our share price, and the share price of media companies over the last ten years, it's not been a good performance, even against the general indices. The general indices have fallen, but media stocks have fallen faster.

There are two big changes here. One is the G word - Google - which was a structural change; and the other is the R word - recession - because agency revenues and indeed profitability had been reasonably good over that period of time.

Rupert Murdoch
Rupert Murdoch's News Corp has fingers in many media pies
It's the media owners who have been put under severe structural pressure; the structural change for agencies has not been as prohibitive. It's been prohibitive for the media owners who bet on a technology.

For us, there have been three engines. One is the new markets which are now 27% of our business; second is new media or digital, which is now 25% of our business; and third is consumer insight, which we think is becoming more and more important.

Somebody like Rupert Murdoch understands that he's not just in the TV business or the film business. He understands he's in the communications business.

Rather like Theodore Levitt used to talk about the buggy whip industry. They're not in the horse and buggy industry. They're in the transport industry. And when the railroads came in, they were threatened; but if you thought about it as being the transport industry, you won.

Rupert understands that. He's in film, he's in TV, he's in outdoor sites in Russia. He's spread his empire around the world. ITV is one country - the UK - and one medium. It's very vulnerable, as we see.

THE BENEFITS OF SCALE

We get big economies of scale in the media buying area. Our revenues are 7.5bn, about $15bn. Our media billings are about $60bn, which means that if we consolidate our media buying, which we do.

For example here in the UK our GroupM accounts for about a third of press and about a quarter of television - we get distinct economies of scale in terms of buying power.

THE BOTTOM LINE
BBC Radio 4, Saturday 14 March at 1730 GMT
BBC News Channel, Saturday 14 March at 2130 GMT
Or download the podcast
The perception of clients and the people inside agencies is that the bigger a creative business gets, the less creative it gets.

But you can manage conflicts of interests by dealing through different organisations. That's one of the reasons why you do keep the multiple brands.

And what we're increasingly seeing is that companies are looking for access to quality talent. We have 133,000 people around the world. We invest 9bn in those people every year. I just came from South Africa where we've now got about 16,000 people working in one way or another.

What we're seeing even in countries like that is clients looking for us to harness the talent that we have in more effective and efficient ways. We're seeing clients asking us to put teams together - for example we have a team Vodafone, a team Unilever, a team Ford or whatever it happens to be - to put together the best talent to deal with the issues in the marketplace.

And that's an economy of scale in a sense because you're bringing a lot of talent together and you can configure the talent more effectively.

GETTING ON BETTER WITH GOOGLE

I've referred to Google as a "frenemy" or a "froe": a friend and enemy, friend and foe.

You talked about the handset manufacturers' relationship with the operating networks.

A computer mouse sitting on a Google mouse mat
Google has just launched 'behavioural' advertising based on user profiles
If I'm Vodafone and I want to establish my brand with a consumer, I brand a phone. Nokia and Vodafone get into that frenemy territory as well, just like we get into with Google.

We spend $900m with Google a year. We're the biggest search buyer in the world.

Our digital billings are $4bn - we're 5/6% of their revenues. We are a major customer. Of course there's a competitive element too.

They've got friendlier in the last 6 or 9 months. I think as things have got tougher and they've become much more focused, they've got more friendly.


INTERNET TARGETING

The average client worldwide is spending 10 or 12% of his or her budget on internet. You and I spend, according to the statistics, 20% of our time online, so the weighting should at least be 20%. By the time we get to 20%, you and I will probably be spending a third of our time online.

The balance has shifted. So TV, instead of being a third in a normal market or worldwide, probably will go to about 15 to 20%. Newspaper and press will go to 20 to 25% with internet, mobile, video content making up the balance.

Mobile phone with text message
Mobile technology can facilitate extremely targeted marketing
I just recently came across one very good example which dramatises the opportunities with mobile from Icon, which is one of our agencies in Germany.

Their client is a tyre company. By law you have to have snow tyres when it snows, so what they did when it started to snow was they SMS'd everybody and said "It's snowing - you'd better go and get your snow tyres".

That increased their sales by something like 30 to 40%. So what we're talking about is using a medium which is a one to one medium - you know somone needs snow tyres in Germany, we SMS him to remind him that by law he must do this and you take advantage of the timing and the need to do it.

WHETHER TO CUT STAFF IN A DOWNTURN

I remember in the last deep downturn in 91/92, where we had considerable difficulty. I remember Ogilvy asked people whether they'd rather see a reduction in the headcount or in a reduction of the general level of pay.

Icicles
Figures suggest as many as 10% of UK firms are implementing pay freezes
My own view is probably reducing the headcount is probably better, it's more effective.

Because in any organisation there are going to be people who perform and people who don't perform, and so I think it's about tough love [which is] very difficult.

Take our organisation. Our headcount last year was up by 4%. In fact we went up faster then revenue growth, which was 3%. This year our budgets are [expected to be] minus 2%, and if that comes to fruition, our headcount will go down by 2%.

So in the context of a company with 133,000 people, it's about 2,000 people. So up 4,000 last year and down 2,000 this year. I think that's more effective.

WORK-LIFE BALANCE

In business school there was this course where we talked about work-life balance. If you wanted to get an A grade on the paper, you just drew three circles for career, family and society.

The statue of former Liverpool manager Bill Shankley outside Anfield stadium in Liverpool
Legendary football manager Bill Shankley had his priorities in order
But I think the thing that you often forget at times like this is that balance, and balancing those three balls or those three areas and their intersections is critically important and there are very few people in the world who can do all three of them.

If you have founded a business, I often say it's as near a man can come to giving birth - not physically but at least mentally or psychologically, and then you are tied to the business.

It's like Bill Shankly's famous phrase - "You know football is not a matter of life and death. It's more important than that". WPP is not a matter of life and death. It's more important than that.

HOW BAD THE RECESSION WILL BE

What we're going through at the moment is very tough. I was looking at some statistics from Japan - Dentsu's revenues down in February by 20%; newspaper advertising down by 37%; Korea advertising 50%.

President Barack Obama
Can President Obama's ambitious plans help the US economy recover?
The first half of 2009 will be very tough - I think the second half of 2009 will get relatively better. Relative to the first half.

And I think in 2010 we will get a recovery - what we called in a recent statement "a recovery of sorts".

But it's going to look good because 2009 is a bad year. We always thought 2009 was going to be a bad year, but we didn't think it was going to be as bad as this.

Unless Western Europe changes, unless they change the political rules and the structural rules in relation to restructuring businesses, we will fall further behind.

I have very great confidence in President Obama, in the American entrepreneurial culture, their resources. But for Western Europe - defining that as UK, France, Germany, Italy and Spain - unless we change, I think it's going to be very tough.

THE FUTURE

When we come out of the recession there will be big, big opportunities. Leverage will not go back to where it was before, but there is a tidal wave of water - a tsunami of funds - waiting on the sidelines, waiting for the recovery.

A pile of money next to a newspaper cutting that says "recession"
Things can only get better
And I wouldn't bet against excesses happening again and bubbles being created again in certain areas.

I'll take a bet with you. Private equity looks as though it's flat on its back but equity values are at a severe low. Private equity will be in a position to buy very effectively at very low prices. When leverage comes back, it won't come back to the degree it had, but it will come back.

One head of a major private equity house said to me a few months ago, "Give me your pension fund and I'll guarantee you a 40% compound return". He was joking, but it will happen.


Sir Martin Sorrell was a guest on The Bottom Line, broadcast on BBC Radio 4 on Saturday 14 March at 1730 GMT.

The programme will also be broadcast on the BBC News Channel on Saturday 14 March at 2130 GMT.

Or download the programme's podcast.



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