Sir Martin Sorrell on digital, cost-cutting and client-agency relationships

As founder and CEO of WPP, the world’s biggest and most profitable marketing group, Sir Martin Sorrell is arguably one of the most powerful ad men of our time.

From his position as the head of the agency network – which spans advertising, media, data and PR – and through his work with some of the biggest global brands, he has a unique viewpoint on the future of the industry and what it means for marketers.

Marketing Week sat down with him to explore the topics that are top of his mind when considering the trends shaping advertising today and for years to come.

Don’t silo digital channels

Digital is, unsurprisingly, one area Sorrell sees huge potential for growth, and it is little wonder considering UK advertisers spent £3.98bn on digital advertising in the first half of 2015 alone, a rise of 13.4% year-on-year, according to the latest statistics from the Internet Advertising Bureau. More than a third (37%) of WPP’s spend on behalf of clients is in digital.

The latest industry debate centres on the use of the word ‘digital’ in marketers’ job titles. Many feel it is no longer a subset of what they do and therefore should not be singled out but considered simply as part of marketing. Most recently, adam&eveDDB, which is owned by the world’s second biggest ad group Omnicom, replaced ‘digital’ with ‘interactive’ as part of a wider agency restructure, something which Marketing Week columnist Mark Ritson criticised as being just as unnecessary.

Sorrell – the UK’s best-paid CEO – believes the move to eliminate digital is becoming “very common”, but defends having digital distinction at WPP because it “shows direction” and “gives a good guide as to the way we are going”.

He notes that adam&eveDDB’s decision to remove the digital classification “mimics” Omnicom Group CEO John Wren’s previous thoughts on the topic. “[It is] probably driven by the fact that John was a bit embarrassed [by the] proportion of his business that wasn’t digital,” Sorrell suggests. But putting that to one side, he adds “it’s a perfectly legitimate argument, just like you wouldn’t carve out TV advertising”.

He also believes that the vulnerability of many traditionally successful agencies stems from their “failure to move into digital as rapidly as possible”.

Instead of focusing on titles, he urges marketers to look at marketing channels collectively rather than as individual mediums. “Picking channels out is a mistake; they all add up to a combination that is productive. There are dangers in going too far one way or another,” he adds.

Even with social media Sorrell sees distinctions in what each platform has to offer, which he admits might “upset” the big players in the sector. He believes Facebook is a branding medium rather than a sales channel and Twitter is predominantly a PR tool, while Snapchat is “interesting” because of its traction with younger consumers.

“Each channel and medium is attractive for different purposes. That’s why you have to look at it as a continuum – as a whole, as a portfolio – not just focus on one thing or another,” he adds.

More robust measurement is required

On traditional versus digital channels, Sorrell believes the popularity and dominance of each comes in waves. He says it was “very fashionable” to focus on digital when it accounted for 5% to 15% of spend, but now that these channels are growing in dominance and taking more budget, marketers are required to show its value, so measurement needs to improve.

He also warns that the price of digital will be driven up if supply cannot match demand, which could encourage marketers to return to traditional channels such as print where “there may be bargains”.

Measurement, particularly in digital, remains an issue, however. Last year, Facebook and Twitter created tracking tools for marketers to help alleviate these concerns but what constitutes an ad impression online is still up for debate.

Measurement is particularly vital for marketers when proving the worth of marketing and creative to other departments within a business. Sorrell touches on the topic in a section of an essay titled ‘Business needs magic, not just metrics’, which was published in WPP’s annual report and on LinkedIn.

He says: “There are dangers in defining yourself as a creative business, not least at a time when the finance director has disproportionate influence in client boardrooms. All too often, spending on intangibles (and what greater intangible than creativity) falls into the risk category.”

WPP therefore does not define itself as a creative business but a “creatively effective” business. “Measurement people in our industry don’t like so-called creative people. ‘Mad Men’ in the Don Draper sense don’t like measurement. Given that 25% of our business is about data, we don’t agree with that,” he says.

Cost-cutting is not conducive to growth

This does not change the fact that many marketers have to watch and increasingly justify ad spend in the boardroom. The latest IPA Bellwether report finds that marketing budgets had their weakest growth for nearly three years in the last quarter of 2015.

Sorrell believes cost-consciousness is here to stay amid a slowdown in wider economic growth. The only reason that might change is if people realise “cutting costs is not the be all and end all, and that growing revenues is the right thing” to do.

“What we have to do as an industry is demonstrate to clients that it makes sense to focus on the top line and that those companies [that do] are the ones that are successful,” he explains.

To illustrate this point he says if you invested in the top 10 companies identified by Millward Brown’s BrandZ report and Y&R’s Brand Asset Valuator – two datasets WPP is looking to combine this year – you would outperform the US Commodity Index by 300%. The implication is that strong brands are also financial assets.

Procurement is another pain point for brands as it brings the argument about cost and validating marketing spend to the fore and onto the shoulders of marketers. Sorrell says: “To deal with procurement, finance or IT you need more quantitative justification, whether we think as an industry that is good or bad.”

He also believes there are two ways marketers can approach the procurement issue: constructive and destructive.

“Constructive in my mind are those clients that say ‘let’s try and work together, let’s reduce the scope and improve the decision-making process on the client and agency side’,” he says.

“Then there is the destructive approach, which is ‘if you don’t do what I tell you to do, then you’re fired’. I find the best relationships are the first type, where we understand the pressures clients are under [because] we are under pressure ourselves.”

Sorrell insists that moving procurement back under marketing’s remit, as PepsiCo did recently, is “a move in the right direction”, but only if it is done for the right reasons.

He says: “If I understand it correctly, [president of PepsiCo’s global beverage group] Brad Jakeman was voluble in criticising his agencies in terms of response and speediness, and if through that there is a greater emphasis on the [creativity of marketing] – on the top line rather than the bottom line – that is all to be welcomed.”

Client-agency relationships aren’t ‘broken’

Sorrell says it has become “fashionable” to suggest that client and agency relationships are broken “but that hasn’t prevented trillions of dollars being spent through agencies”.

“We have contractual relationships with our clients and if clients have concerns with their agency, they should raise it with their agency, not with members of the media. It gets a good headline but whether it does any good is another question.”

He concedes that all relationships go through times of stress and strain and that while organisations such as Google could have cut agencies out of the equation, the tech giant is in fact WPP’s biggest media partner so Sorrell does not believe this supposed threat is founded.

“The best thing [groups like] the WFA [World Federation of Advertisers] and the US Association of National Advertisers can do is insist that agencies [report billings as well as revenue],” he says. “We are vigorous in that and we have been very transparent on compensation and incentives and those figures I’m referring to on divisional rate, geographical and breakdowns by region and country.”

All companies must fight to retain talent

In addition to ironing out internal issues around procurement and client-agency relationships, marketers are also finding it increasingly difficult to attract and keep talent in the industry.

Top executives are fleeing FMCG and old-economy companies for the likes of Amazon, Facebook and Google, according to a report by member-based intelligence firm L2 Inc. It shows that more than 600 people at Procter & Gamble, over 300 from L’Oréal, and around 275 from Unilever cumulatively have left to join new technology companies.

The study shows that the challenge facing organisations undergoing digital transformation is how to attract and retain key digital talent. While some look to upskill and promote digital professionals from within, others recruit externally, but all compete with major technology companies in the ensuing war for talent.

Sorrell says there has always been competition for people from other industries and admits that it is “regrettable” that marketing is losing out to some technology companies, but he believes it is an issue for all sectors.

“The problem with our industry is that people think the way to get talent is by stealing it – they win a piece of business and they take talent [from other agencies]. It’s self-defeating,” he says. Meanwhile, investment banking and consulting businesses such as McKinsey & Company and Goldman Sachs recruit, incentivise and motivate their people, which enables them to consistently recruit the best talent, he argues. Sorrell also believes that digital will change the way companies recruit.

Getting people on-side internally will be key to beating the competition to the top talent in the future, he believes. Ensuring internal communities are kept informed about the strategic purpose of the business means they will speak positively to colleagues, clients and people who are considering joining the industry. “Your best ambassadors are the people inside your company,” says Sorrell. At WPP, that’s 190,000 potential spokespeople across 112 countries.

He admits that one of the biggest challenges facing any chairman or CEO is communicating strategic and structural change within their own organisation, which is particularly difficult in multi-branded companies that have grown through acquisition rather than organically.

Ultimately, Sorrell’s ambition is to achieve a standard of excellence that creates a “pavlovian reaction” so a client looking to change agency or anyone looking to join the industry automatically thinks of WPP.

Arguably, this is an ambition shared by most brands as they too look to incite a reaction that puts their name at the forefront of people’s minds – both prospective employees and customers. But tougher challenges are ahead, not just for Sorrell and WPP but for the advertising and marketing services industry as a whole.