I had the honor and privilege of meeting and listening to Sir Martin Sorrell at Britain’s Most Admired Leaders at IET Birmingham, United Kingdom recently on his lecture about ‘The Reputational Challenges To CEOs and Companies’.
Sir Martin Sorrel needs no introduction. Sir Martin Sorrell has been Group Chief Executive Officer of WPP Group PLC of Grey Global Group Inc. since its founding in 1986. Collectively, WPP employs over 165,000 people (including associates) in over 3,000 offices across 110 countries. The Group’s worldwide companies include JWT, Ogilvy & Mather Advertising, Y&R, Grey, Mindshare, MEC, MediaCom, Kantar (including Millward Brown and TNS), Wunderman, Burson-Marsteller, Hill+Knowlton Strategies, Landor, The Brand Union, Geometry Global, Fitch, The Partners, AKQA and WPP Digital (including 24/7 Media). Clients include 350 of the Fortune Global 500, all 30 of the Dow Jones 30, 63 of the NASDAQ 100 and 31 of the Fortune e-50. In 2012, WPP had revenues of £16.5 billion and billings of £70.5 billion.
Sir Martin Sorrell started his career as Marketing Associate of Glendinning Associates of Westport, Connecticut. In 1997, he was appointed as Ambassador of British Business by the Foreign & Commonwealth Office and subsequently appointed to the Office’s Panel 2000 aimed at re-branding Britain abroad. In 1999, he was appointed by the Secretary of State for Education and Employment to serve on the Council for Excellence in Management and Leadership. He serves as Director and Member of Advisory Board of Alchemy Partners LLP. He serves as Member of Advisory Board of IESE in Spain and is a Member of Dean’s Advisory Council of Boston University. He serves as a Member of Corporate Advisory Group of Tate Gallery. Since 1998, he has been Member of Board of Dean’s Advisors of Harvard Business School. He serves as Member of Governing Board of Indian School of Business. He serves as a Trustee of Cambridge Foundation and a Patron of Cambridge Alumni in Management, a Trustee of Royal College of Art Foundation. Sorrell served as a Non-executive Director of Colefax Group PLC until September 30, 2003. He served as Non Industry Director of Nasdaq OMX Group Inc since January 2001. Click here for a detailed executive profile on Sir Martin Sorrell.
He is considered to be a leader who is genuine to what he has stood for, his ideals and philosophies and his business ethics in each and every step. He is known for his leadership skills and is considered a visionary. Controversial yet colourful, ability to foresee challenges and solve them effortlessly, a man of many words but yet somehow quite mysterious and unknown; as if in juxtapose. In his words “Some people are good at starting things; some are good at running them; it’s not often that people can do both,” said Sir Martin Sorrell speaking at Most Admired Leader’s lecture.
The Reputational Challenges To CEOs And Companies:
Sir Martin Sorrell was introduced to the audience by Mr Christopher Prince, Chair of the Management, Organisation and Community Development Steering Committee and also the Executive Dean of Birmingham City Business School at Birmingham City University. Sir Martin Sorrell started the talk by raising the issues that the present day CEO and the top management of companies are facing – with a focus on strategy, structure and implementation. He goes on to saying that one of the big issues that he sees is a failure to insist – to insist on working towards a goal where one has to put their money where their mouth is going and not focus on risk aversion. The average life of a CEO in companies stood at 5 years worldwide, although he says, some data also shows it as 3 years. The average lifetime of a CMO in America is 2 years now. It is this environment, people are not willing to take any kind of risks; either to innovate or to think and do beyond what the rest of their peers and competitors are doing. Over consciousness of what is happening in and around the market dynamics also limits the way the top management is making their decisions. September the 12th, 2008 – when the world financially almost came to an end on that weekend; Warren Buffet called it America’s financial Pearl Harbor; Jeff Immelt (CEO, GE) allegedly went on to saying that ‘We are unable to finance GE Capital’s corporate funding requirements. This had changed people’s opinions in a larger way that we had imagined. Strategy is useful to the Structure but Implementation is the key; therefore the focus needed to be on stronger strategy as well as stronger implementation. Therefore what’s essential was not options but people with real skills to really look into the exact situation and deal with events and business challenges in a broader perspective’.
Sir Martin Sorrell points out to 10 things that tomorrow’s leaders should think about. WPP is like an investment bank wherein it invests on skills and portfolios that truly have capability in making it big in the market. It’s is different because WPP accepts foreign policy and adapts its business goals according to the market dynamics. Sir Martin Sorrell goes on into saying that when he picks up a newspaper or a digital version, he is reading about, if not less at-least half of the stories involved : Advertising, Media Planning, Media Buying, Media Management, Data Investment Management, Research, Consumer Insight, Public Affairs and Public Relation Businesses, Branding and Identity Businesses, Healthcare Communication, and of-course the Digital Direct Businesses. Apparently everything has become more demanding and interesting that it has ever been before. As one of an employee went to McKinsey and came back WPP, Sir Martin Sorrell had asked what is it that McKinsey is different from what WPP is doing, he says, “In McKinsey, they says “It Is A Fact That..” whereas in WPP, we says “We Know That..””.
1. The Shift In Power And Influence of Economies
He talked about the World economy and how the economics seems to be constantly shifting drastically. America being a 16 trillion dollar in GDP, the World is a 72 trillion dollar GDP (or similar); China, almost the second biggest economy in the World is 8.5 trillion dollar in GDP. The power and the influence of the economies are shifting; to the east, to the south-east, to Africa, middle-east, Latin America and beyond. With the Olympics in Brazil in 2016, a lot of eyes on the infrastructure, equality challenges, living standards, social challenges, etc and these have been the key issues that everyone is looking forward to tackle. The countries in the south and south-east have much more ‘economical political social sway’. The increase in revenue (delta) comes from two things: ‘Shifts in geography and technology’.
2. Overcapacity or Shortage of Human Capital
Ford is the biggest client of WPP and the automobile industry manages to produce 80 million units. When the industry got into trouble in America, it defenestrated capacity but outside of America, it grew! The Chinese car market is now 16 million units. US used to be 18m units, shrank to 9m units, now back to 15m units; so China is the biggest market. So you have this expansion in China, you have this expansion in India with Tata Automobiles Nano – launched by WPP in India, South Korea with Hyundai and the traditional manufacturers like BMW and Mercedes. We still have significant over-capacity, so differentiation becomes more and more important. WPP’s businesses are in this business to differentiate businesses and products in a meaningful ways; you earn the right to charge a premium. So we got over-capacity in terms of production, and shortage in terms of people. If we look at all the demographics, the two-earner/smaller families sizes, the ageing of population, even in a country like Mexico which has a younger population will becoming an aging one by 2020; but not as bad as Russia, or China. The aging of the population means the supply of talent is going to be less. Family sizes are going to be smaller. Women have got much more active in the work-force as well than they have been before. They are half the population, perform better, on an average are more intelligent, emotionally more aware; organize their time better and thus better with clients. Making sure we got the right people, keeping them and incentivising them is really important. Essentially the war for the right people and talent.
3. Rise And Rise of The Web
Disintermediation is a legacy business. What Sergey Brin and Larry Page at Google are about is disintermediation, which is similar to the rental model. Some of the students with Sir Martin Sorrell are building a car rental website, charging a fee of 7% to 10% over. What they are essentially doing is disintermediating an inefficient model. That’s what the model is about; it disintermediates the legacy models with a totally different business model. Not a model based on revenue, growth, margin, cash flow or profitability. Looking back to the talent point, it is very attractive to young people. Young people prefer to work in small, networked, technologically strong companies rather than big bureaucracies.
4. Growth of Retail Power
The growth of the retailer can be seen everywhere. They have tremendous power, no matter what. For example, Wal-Mart, Tesco, Carrefour etc have been bringing the whole inflation on the consumer level; for twenty years. When there has been inflation there has been commodity prices. Manufacturers have had their margins squeezed and they put pressure on the supply chain; which WPP is a part and therefore it reflects on the consolidation of the industry. The reason where they have to consolidate in part is because of the financial bridge. Manufacturers have little pricing power; retailers have the direct relationship; Tesco has the best source of purchase data in America. Therefore, retailers really have the understanding of what is happening with the consumers. They tend to move rather quickly than manufacturers. Retailers do also tend to put pressure of their pricing power on the manufacturers. With the growth of online retailers like Amazon etc, that situation seems to be changing and as men and women are gradually becoming equal in the society as income earners, families are growing much smaller and more and more people are moving towards the cities. 50% of the world population is in cities. It will be 70% in 2030; the IBM Smarter Planet Smarter Cities campaign done by WPP is done based on that thesis. As 70% of the population is in cities, congestion will get worse. The car will become a bigger issue, as we can see the changes that are going through – driver-less cars, electric cars etc. As a result, big-box retailing will come under pressure. Proximity retailing allied to online retailing will become more and more important. Therefore retail power is quite dominant, but currently seem to be going through some very important changes.
5. Importance of Internal Communication
Today, the biggest issue every Chairman and the CEO faces is not external communications, but internal communications. Ogilvy & Mather wrote 50 years ago that ‘If I will be in advertising, then getting the internal messages aligned is more important than the external because if you got people aligned inside your company to your strategy, they would send out positive messages to potential employees, customers, clients, suppliers, NGO’s, analysts, journalists etc’. 60% of the companies are focused internally rather than externally, which is the same with WPP.
6. The Drift To East And South
“The West is not in the ‘box seat’ anymore. China is.” We were witnessing the rise of China, the BRICs and the Next 11, or N-11, including Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. The South East includes Africa, with the Southern axis of opportunity including Latin America and Brazil which hosts the 2014 World Cup and the 2016 Olympics.
7. Structural Change In Global Companies
We are seeing global companies changing their organizational structure since the last 20 years. One of the things that’s going to happen is that we will have a slimmer global center with focus on local; which is similar to horizontality – client integrators and the country managers and regional managers. The size of companies top-management has reduced considerably from what it used to be. The main reason for this change is technological advancements, which is squeezing them into doing more and managing more. This results in very focused and centralized units coordinating with each other. This enables the organization to adapt and focus to various local emphasis, and at the same time remain streamlined with the company’s core strategies and policies; and make sure it doesn’t have to reinvent the wheel in every country it operates in.
8. Power of Financial Procurement
Inflation has been here since last 20 years and has affected purchasing factors. Commodity prices put pressure by the supply chain on manufacturers while looking at their costs. As a result of that, the breadth of financial procurement has increased. The risk aversion ratio rose quite dramatically and as a result people have been quite reluctant in taking financial risks. As a result, there has been a very little top-line growth. The focus on costs increases and financial procurement takes a second seat. The advertising and marketing business is about stimulating the top-line. If companies focus too much on cost, and not enough on top-line, that they will run into trouble. Until one gets to a 100% market-share, what one can do is infinite, whereas there is a finite amount of what you can do with cost. It’s true that technology helps in reducing cost and being efficient, as well as more effective, but being effective in growing the top-line is absolutely critical. The power of financial procurement has got too great. Clients are now making decisions in procuring agencies which are based on ‘pure financial criterion’.
9. Growth of Government
Anyone who thinks that government will go away post Lehman is missing the point. Government as an investor and communicator is becoming more and more important. If you’re in the business of building a lot of brands in products and services then you won’t do anything to offend your stakeholders and customers. WPP’s biggest clients have been governments around the world; particularly the year before election proceedings takes place. Government as an investor, as a regulator, as a communicator is becoming more and more important. John Browne made a speech in 1997 at Stanford University (Stanford Business School) on corporate social responsibility (CSR), at a time when the market was quite volatile and manipulative. He simplified the term for the general masses to understand, since CSR is the heart of corporate strategy. He said “If you in the business of building ‘long-term brands’ (products and/or services), you naturally will not do anything that offends your stakeholders.” If you are in for a short term, like an oil company and you want to rip out oil and to hell with the environment, and as quickly as possible, obviously you will cause some problems with the stakeholders. But if you are in for the long-term, doing good is good business. You don’t have to have high-blown ideals if you are just very practical about it. Doing good is good business because it engages consumers and it engage people. The fact that WPP has an advertising school in Shanghai, China is great for the people at WPP because WPP has a churn-rate of over third, which is quite high. One can imagine the impact people can have in coming together, to have the opportunity to fashion the curriculum and teach young bright minds about working for WPP and its culture. That is another tunnel for motivation in itself. Doing good is therefore good business as long you are looking for the long-term impacts.
10. Industry Consolidation
WPP is still the largest player in the industry, with a market cap of £29bn, revenue of £18bn and £2bn of Ebita. All of the points that were covered are really important for corporations. WPP knows that corporate is important, as well the impact of corporate leaders on that. It is really important to get the strategy right, to get the structure right, to get the implementation right; and to incentivise people correctly.
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