WPP’s share price carried on inching forward this morning, showing that investors are willing to give CEO Mark Read the benefit of the doubt in the wake of various cost cuts and organisational changes announced yesterday.
Read (below) disappointed a number of commentators with his modest cuts – £300m when, as Alex Brummer pointed out in the Daily Mail, the company’s operating expenses are £11.9bn (billion) – and, despite talk of “one company” his decision to keep the remaining big agency brands more or less as they are.
All this could change depending on, as former UK PM Harold Macmillan famously put it, “events, dear boy, events.” A Prussian field marshal observed that no plan ever survived contact with the enemy.
But WPP these days is, increasingly, a business services company (albeit one based on creativity) and service companies need lots of people. He may still decide to hive off bits of the empire in due course, public relations may be a candidate for disposal or at least a dramatic reduction. And after merging Y&R with VML and JWT with Wunderman another forced merger or two wouldn’t surprise anybody that much.
The focus, though, as Read said, is firmly on clients and, like any agency, WPP stands or falls on its success in winning and retaining them. For all the talk about structural problems under former CEO Sir Martin Sorrell the real trouble was caused by losing giant media accounts AT&T in the US and VW globally. If WPP had kept these Sorrell might still be there.
A big part of Sorrell’s strategy was getting in before his competitors, first via digital and then by clever constructs like programatic media buyer Xaxis in the US. Xaxis was believed to deliver eye-watering margins when clients were prepared to hand over their digital spend and pay the agency price. That all began to come to an end with the ANA report into media transparency a few years back. WPP’s magic toolbox lost its mojo.
More traditional activities like creative advertising, once the core of WPP, couldn’t make up the slack after years of under-investment (and major mis-steps like the Gustavo Martinez farrago at JWT) and WPP’s growth stuttered to a halt.
Read seems to recognise most of this although he’s too polite to say some of it. WPP, now without its magic toolbox, has the same problems as any much smaller agency business: persuading enough clients it can add value to their business.
Someone who’s given more thought to advertising than Harold Macmillan or our Prussian field marshal is BBH founder Sir Nigel Bogle. He once famously observed that no ad agency was ever “more than three phone calls away from disaster.” That’s where WPP is now, along with its peers (Sorrell had two, of course, and it did for him.)
Something for investors to bear in mind as they cautiously mark up WPP’s shares.