Our Google alert has alerted us to the news that WPP’s Enfatico will be merged with Y&R. From the WSJ, who broke the story:
“The move is a retreat from one of the most ambitious projects on Madison Avenue – an effort to eliminate turf wars by housing many different marketing disciplines within a single firm. The structure was one of WPP’s key selling points when it landed Dell’s advertising and marketing business in December 2007.”
A statement from the agency read that this was “a strategic decision” and that “Enfatico remains a standalone brand alongside Y&R’s other companies including Y&R Advertising, Wunderman, Burson-Marsteller, Landor and others.”
You knew this was coming. From the beginning, Enfatico was the subject of the ad industry’s jeers. One client. Too many bodies. A huge lease on a downtown building. Mediocre creative, high level staff changes on the client side and everyone has heard the rumors that Dell is shopping around. A bold idea has gone bad. CEO Sir Martin Sorrell was going to have to do something with the increasingly heavy weight of Enfatico. WPP isn’t healthy enough (and really who is?) to redistribute the shop’s employees, which number around 800 people worldwide. Where are they going to go? As Sorrell recently wrote in The Financial Times: “Some have said that, intellectually, recessions are exciting or fun. That is callous nonsense. Telling someone who has lost their job or business that their troubles are merely part of a cycle will provide little comfort.” Oh how true. Maybe Marty-Mar should write everyone at Enfatico a little note, hmmm?
Meanwhile, WPP as a whole is struggling. JWT recently closed its Chicago shop. In the UK, Publicis beat out a team from WPP for Visa’s 2012 Olympic business. Y&R Chicago just lost the Miller Genuine Draft account to the New York office of Publicis Groupe’s Saatchi & Saatchi. And WPP’s Mindshare is defending the $250M Wrigley account any day now.
Tough times for WPP. Still, the company is pushing deeper into the Pakistani market. Does Sorrell have President Asif Ali Zardari in his pocket? Zardari is known as “Mr. 10% Percent” considering his alleged skill in the fields of bribery and money laundering. WPP isn’t alone though. Plenty of death star agencies are hoping that growing businesses in “developing countries” will defray some of the shock and awe happening in the US, as well as Europe. In WPP’s case, the balance sheet is a little shaky. Sure, WPP posted $13.6 billion in revenue for 2008, but that includes two months of revenue from TNS and it’s against a whole lot of debt.
In early March, the Sorrell told investors that: “I’d just like to say in the 25, 30 years that I’ve been in the business, I have never seen anything quite like this.” His long list of worries is surely growing and growing and growing.
Today, the market is up and up as investors respond to Treasury Secretary Tim Geithner’s plan to save the banking sector. Meanwhile, Citi analysts have downgraded WPP’s stock from buy to hold. On the London market, WPP was a “prominent faller” dropping 1.24 per cent.
What did Wilson Phillips say? Something about knowing that there is pain, but if you hold on for one more day, you can break free, break free from the chains? Hold on WPP. Just hold on, okay?
WPP released their preliminary earning results today. Rather than just shovel the good news (billings up 16.6% and reported revenue up 20.9%) or the bad news (impending layoffs and a revised target margin), I thought it would be more interesting to highlight the “principal risks and uncertainties” the company foresees as we head deeper into 2009. Just take a look at the list below. It ranges from noting that the group’s revenue comes from a limited number of clients to possible judgements against WPP to the basic issues of being in an economic recession. Of course, companies often make such a list, but in this case, it’s a nice summation of what all the holding companies are currently up against. Shit. I should call JWT and tell them I’m now, very, very, very anxious, indeed.
a. The Group competes for clients in a highly competitive industry, which may reduce market share and decrease profits.
b. The Group receives a significant portion of its revenues from a limited number of large clients, and the loss of these clients could adversely impact the Group’s prospects, business, financial condition and results of operations.
You’ve gotta love Sir Martin Sorrell‘s attempts at staying positive, don’t you? Last night he was honored along with Scripps Networks Interactive Chairman of the Board, President & CEO Ken Lowe during the Paley Center for Media’s annual Gala Dinner held at Cipriani 42nd in New York. As usual, Mr. Sorrell had some notions about the future to share.
Yeah, maybe. But we’d guess he wasn’t talking about WPP agency Enfatico, which cut an estimated 80 people yesterday. We’re told there will be additional cuts in the future, despite the agency’s assurances that yesterday was the only day of planned lay offs.
A few weeks ago, we asked you to tell us what you would ask WPP CEO Sir Martin Sorrell if given the chance. Well, 54 of you submitted questions that covered it all. And as much as we’d like to ask him all 54, we narrowed it down to 10.
With no further adieu, here’s what he had to say.
Question 1: How do you see the events of the past year effecting your standing among the other holding companies and what do you think is going to be the dominant trend coming out of this recession?
Sir Martin: “Can’t speak for others, but we now have a clearly different positioning and strategy, which has been in position for at least the last 10 years and which some have tried to imitate recently.
First, were focussed on the brics and next 11 markets, already 25% of our almost $15 billion of revenues; second, were focussed on new media, also almost 25% of our revenues; and thirdly, on consumer insight, which totals over $4 billion or approaching 30% of our reveunues.
Our targets are at least a third of revenues for each (there is lap-over or cross-over). This is a clear difference both in terms of function, geography and size to other parent or holding companies. As we emerge from this vicious recession, these strategic strengths will become more important and differences will grow.”
Question 2: What’s the future for large communications holding companies such as WPP in a fast, nimble, social media world?
Sir Martin: “Our company is not one monolithic, elephantine company. If you look at our web site or annual report, you’ll see we have over 100 brands, basically because there are some perceived and actual diseconomies of scale in creative businesses like our own industry (such as the perception of size itself and client and people conflicts), but not media buying. In essence, we have about a dozen major brands.
In fact, new media and social networks, in particular, have been and will be an opportunity, not a threat. They’ve enabled us to become closer to the consumer and learn more about their media habits and the changing media market place. Interactive dialogues have enhanced our understanding of the consumer and have enabled us and will enable us to target more and more effectively. Application of technology and use of data have become more important resources and skills for us, alongside the core skill of creativity, in its broadest sense ie beyond just traditional media and the 30 second tv commercial.
For example, we’ve seen major new ways of growing our public relations campaigns through social networks and communities and polling. Editorial publicity has yet again been highighted [sic] as even more important than paid for publicity.
We’ve also seen social networks and new media, such as mobile and video, catalysing the opportunities for consumer insight, advertising, branding and identity, healthcare and other areas.
This doesn’t minimise the need for us to be flexible, responsive, quick and entrepreneurial — all the more in these difficult times for our clients. Big agencies have the advantages of breadth and depth of planning, creative and executional skills. Smaller agencies have the advantages of speed and responsiveness. We have both big and small.”
Question 3: What are your plans for the future for JWT Inside, the employment communications arm of JWT. There continues to be layoffs and the hiring picture in the US is bleak.
Sir Martin: “Employment advertising is structurally and cyclically challenged at the moment, to say the least. Craigslist and other on-line “free” competition is very tough and traditional classified press media have paid the price.
However, the opportunites [sic] for internal communication grow and grow, even in difficult times, as chairmen and ceos wrestle with the need to communicate strategy and structure not only externally, but internally too. We will continue to seek to expand our capabilities in these areas, but employment advertising in old media continues to be challenged, particularly in mature western markets. We need to expand our capabilties [sic] even further in new media.”
Question 4: If people are the backbones of your companies, how do you show them that you and your company actually care? And by care this includes not just as people, but also professionally, in their career growth, therefore enabling success. I am sure most get lost in the shuffle of the giant conglomerate- why stick around?
Sir Martin: “It is going to be particularly difficult in 2009. Our biggest investment is in people. As a group, we invest around $9 billion in people each year, which compares with only about $300 million on capital expenditure. Often feel we spend more time on the latter, than the former.
In 2009 there are still going to be functional and geographical areas that grow like brazil, china, india, many of the next 11 markets, new media, consumer insight, where we will be investing more and areas like usa and western europe where we will be reviewing our investments, as revenues decline, at least in the short-term.
Strategically and in the long-term we offer not only the most interesting national, regional and multi-national creative opportunties [sic], but exposure to the strongest faster-growing markets, new media and consumer insight challenges too. Apart from stronger career opportunities, there are extremely powerful training opportunties [sic] such as maestro, formerly leading the firm and brand leadership courses. Similarly, look at our site for the wpp partnership, atticus, and wpped cream awards.
As a result, a large number of our agencies have been voted as the best places to work in both western and eastern markets.”
Question 5: Do you see a strategic advantage or disadvantage in the trend of cutting senior talent (i.e., their salaries and experience) to acquire junior talent?
Sir Martin: “Not sure that’s the trend in the industry. If you have to cut, the key is to keep it balanced. Not just in the sense of the question — senior and junior – but geographically and functionally too. The increasing client demands are going to come from the faster growing functional and geographical markets. Its all a question of balance and not doing what seems to come easiest ie focussing on junior people or people in far off places.”
Question 6: What do you say to your critics that believe you undercut on price and figure out how to make a profit later?
Sir Martin: “Nonsense — sounds like sour grapes.”
Question 7: What has been your biggest failure as CEO and what did you learn from it?
Sir Martin: “There are failures every day. The biggest one was probably in the recession of 1990/91, when I over-geared the company following the acquisition of ogilvy. I didn’t understand that a convertible preferred stock in a recession was debt not equity.
The lesson — make sure it doesn’t happen again.”
Question 8: Why has not a single Chief Creative Officer or agency CEO been let go in this time of mass layoffs? Where’s the big statement fire? Somehow the heads of JWT, Ogilvy, and Y&R in every single city have kept their jobs. Why?
Sir Martin: “First, although there have not been “mass-layoffs”, there have been ceo and cco changes, where appropriate. In 2008, the total number of people in the company rose by about 4,000 or 4%. Where revenue growth varied, rates of growth or decline varied too. If 2009 revenues are stable, I would expect the number of people to remain stable. The question seems to focus on our brand advertising business, which is now approximately $3.5 billion of revenues out of total revenues of almost $15 billion.”
Question 9: Aside from the economic opportunity you saw years ago, do you genuinely love advertising and marketing? What campaigns do you like?
Sir Martin: “I genuinely do, particularly as its such a fun, varied, diverse, merotocratic [sic] business — that is you’re only as good as your last idea. Its like sports or entertainment. There are few barriers to entry and the effective creative idea (not just tv advertising) is the entry point. There are few industries that have such limited hierarchies. Experience is no barrier to entry.
It would be unfair to single out any campaign in particular, for obvious reasons, but, as long you don’t tell anybody, I do love a norwegian ad for a language school – one of ours, I am afraid.”
Question 10: WPP’s integration is different than your average corporate integration, it’s not really horizontal or vertical. It’s a bit of a hybrid and it seems that the core benefits (risk aversion and efficiency, respectively) of these types of integration aren’t realized in this type of hybrid model. I can only assume that the reason why WPP subsidiaries aren’t fully merged is to avoid roster conflicts. Has this inability to leverage a major competitive advantage actually become a weakness or threat to WPP because of additional executive staffing requirements that are not typically seen in smaller agencies?
Sir Martin: “The integration is both horizontal and vertical, where appropriate. Our brands have to compete and co-operate, kiss and punch.
As explained above, there are perceived diseconomies (by clients and people) of scale in all creative businesses and there are real diseconomies of conflict for client and people reasons.
What has become apparent in the last few years is that clients want access to all of a groups resources, not just those of one brand. Why have access to only 10,000 talented people, when you can have access to over 130,000. This started with accounts such as hsbc and vodafone and migrated to samsung, bank of america, p&g, ford, dell, j&j pharma and hp. Increasingly, the parent companies or holding companies are becoming the full service agencies of the 21st. Century. This is the major and unparralleled opportunity.
Given wpps unmatched resources, it is a particularly attractive opportunity and shift in client demand.”
And there it is. A big thanks to Sir Martin for taking the time, and all of you for submitting your queries. Comments are open.
For one thing, George Parker wouldn’t have nearly as much reason to complain. But as Ogilvy Group vice-chairman Rory Sutherland explains in the video above, WPP would probably cut business overhead by getting rid of the talent and focus on selling overpriced booze. Click play.
WPP is gearing up to invest $25 million in Orem, Utah based Omniture — an advertising analytics company, reports the Wall Street Journal. It seems WPP is hoping to earn, and learn, from the advertising analytics business, the report alleges.
A $25 million investment in Omniture stock would give WPP access to the detailed information marketers are so eager to obtain about click through rates and other consumer habits. Neither Omniture nor WPP confirmed these rumors.
Sir Martin Sorrell, chief executive of WPP, is blogging the World Economic Forum in Davos, Switzerland for The Financial Times. What I wouldn’t give to be sipping on some champie between a German Chancellor Angela Merkel and U.S Treasury Secretary, Tim Geithner, sandwich. Don’t ask.
Highlights from Sorrell’s first entry? Um, none really, but he did write that: “For the first time ever, after 20 or so years, all the four largest advertising and marketing services parent or holding companies are represented here.”
Good, good. Get involved why doncha’? He’s not the best blogger. No links. Not a lot of juice in his words or shining break throw thoughts, but follow him if you want. Other FT mag bloggers on Davos include: Lee Bollinger, president of Columbia University, and Nandan Nilekani, co-chairman of Infosys.
LAST CALL! This is the LAST CALL!
Update: You will see this post reappear so everyone can have their chance to ask a question. The closing date for questions will be next Friday, January 23, 2009.
Psst… Hey! You! You at your desk? Sir Martin Sorrell has kindly agreed to answer your questions. Not ours. Not Stuart Elliott’s of The New York Times or Jonah Bloom’s of AdAge, but yours. Yours, yours, yours.
Please submit your questions for Martin Sorrell in the comments section. We will choose ten to send to the CEO of WPP. Warning… questions such as “what does your breath smell like? Bet it’s funky” will not be making the cut. From the ten selected queries, he will choose five. Those answers will then be posted here on Agency Spy.
Individuals whose question were answered by Sorrell, will receive a commemorative mug as seen below, which reads: “I got mugged by Sir Martin Sorrell.” These babies are going to be worth something one day. You wait and see.
Ok. This should be good! Good luck and godspeed.
P.S. Tip of the hat to my favorite copywriter for the slug on the mug.