Sir Martin Sorrell is a legend in the agency world. In 1985 he took an obscure UK company, WPP, and over three decades created the world’s largest advertising and PR agency group, with over 130,000 employees and revenues exceeding $19 billion. He is now the founder of S4 Capital, a new digital marketing agency. In this exclusive interview, we discuss how the agency landscape is changing and the impacts of those changes on clients.
This is the first in a series of interviews Forrester SiriusDecisions is conducting with agency leaders to explore how upheavals in the agency world are changing how B2B clients build and execute their marketing strategy, and how to foster successful agency relationships that drive growth.
Forrester SiriusDecisions: Sir Martin, thank you for finding time to talk to us.
Sir Martin: I’m happy to do so — I would like to help.
Forrester SiriusDecisions: As you know very well, there’s tremendous change taking place across the agency landscape. Traditional agencies are struggling, digital is altering the value equation, and non-traditional players like consulting companies are entering the agency market and making an impact. All of this can be very confusing for clients — what’s your perspective?
Sir Martin: The history of this is important. After the economic crisis of 2008, many companies denuded themselves of marketing costs, and their resources were reduced. They became more and more dependent on agency providers, mainly outsourcing agency and marketing services. Later, we started to see significant changes brought about by online marketing and digital. Digital is obviously different than traditional marketing in many ways: In absolute cost terms, it’s much lower, more targeted and more measurable. In this digital environment, data became much more important and valuable, and companies like Google, Facebook and Amazon began building walled gardens for the data they gathered. They would say they did this for privacy reasons; whether that was the truth or not was irrelevant.
These digital platforms suddenly had a stranglehold on the information about customers, shutting out many companies. I saw many clients who needed to take back control of their processes. Plus, digital advertising and marketing has different demands from traditional approaches. It’s not just about big tentpole campaigns anymore. It’s a new model, which we call the Holy Trinity: first-party data fuels content, which fuels programmatic in a continuous loop.
This has all impacted how agencies operate. Digital is now about half of the advertising business, growing at about 20% a year. Other agencies say that traditional is flat, but I’d say it’s actually declining as a share of the overall market.
Forrester SiriusDecisions: How are agencies adapting to this?
Sir Martin: Well, clients want three things: faster, better and cheaper. Faster really means more agile; every CEO I talk to complains about a lack of speed, it’s the thing they worry about the most in their business. Better means understanding the increasingly important role of technology, particularly in legacy businesses that have been very slow to adapt and adopt, which hurts their competitiveness. Finally, cheaper means that in a no-inflation or low-inflation world with slow growth, you need to operate with much greater efficiency.
Now, if you apply “faster, better and cheaper” to the old agency model, it fails. They aren’t faster because they’re organized in silos, narrowly focused on their own geography or function. They’re not better, because many are legacy businesses and aren’t technically proficient. And they’re not cheap. They can never be, because when you look at how agencies negotiate their fees, there are three elements: direct costs, indirect costs and profit. Their direct costs are high because they are locked into the cost structure of their legacy creative teams that aren’t earning their keep anymore. The indirect costs — the overhead of running the business and the buildings and infrastructure — is typically also high. You have to be more efficient. When I was at WPP, I was consolidating everything on a country-by-country basis.
Forrester SiriusDecisions: So, what does this mean for the future of agencies? What will the agency landscape be like in five years? What will happen to the big holding companies?
Sir Martin: I’m increasingly of the view that the big holding companies will get broken up. I think the breakup value of WPP or Publicis is considerably in excess of the market price. So, following on from what we’ve discussed, if you agree they need to be fit for purpose, I think they’ll inevitably go back to where they were. I mean, if you think of Omnicom, it was BBDO, TBWA and DDB, so why wouldn’t they go back to being those three businesses? If you believe in faster, better and cheaper, then these giant companies aren’t set up to do the job.
Forrester SiriusDecisions: What else should clients look for in an agency and how they’re structured?
Sir Martin: From a client perspective, one of the things they should look at is if the agency has a horizontally integrated structure. They should be facing off to their clients in a way that gives some agility to move around in the different functional areas of the agency. For example, if you’re doing a rebrand, then the agency rebrand team should be talking to the PR team who is talking to the research team, and it’s all seamlessly integrated. At S4 Capital, we have one profit-and-loss statement (P&L) for the whole organization that everybody looks at and is shared, not separate P&Ls that splinter interests. I think you’re better off compensating people on the success of the whole enterprise. It’s better for clients.
Forrester SiriusDecisions: What advice would you give to clients so they have the most productive relationships with their agencies?
Sir Martin: I would say treat the agency with respect. It’s amazing what you can get out of an agency team if you just treat them with respect.
Forrester SiriusDecisions: That’s interesting. Other agency leaders we’ve talked to have said they see a move away from strategic client relationships toward more tactical and transactional engagements. Is that what you mean?
Sir Martin: I think that’s different and might be a reaction to the people we have inside many agencies today. I mean, whenever I meet a client I try and make it as strategic as possible in terms of understanding their business, what their competitive threats are, their expansion plans, and so on. What I’m talking about is a little different and is about the way we interact with clients. I mean, agency staff get treated like dogs, like servants. It’s a master and servant relationship, and that’s not right. I would say, people in agencies feel battered and bruised.
Forrester SiriusDecisions: That’s a very strong statement. Why are things this way?
Sir Martin: It’s because the pressure inside the agency is huge. Go back to what I said about slow or no growth. Plus, things have become too short term. The average life of a CEO is about five years and the average lifespan of a company is about 18 years, according to McKinsey. For a CMO, it’s even less.
Forrester SiriusDecisions: What other advice would you give to clients so they can work better with agencies?
Sir Martin: One message I’d give to clients would be, “You have to change, too.” You can’t tell the agency to change its structure or its approach without changing, too. Agencies see the silos and disconnects. So, for example, the CMO needs to work much more closely with the CIO. I would make the CMO in charge of some of the CIO’s budget. I would make sure the CMO, CIO and sales leadership are working very closely and in a coordinated way. Often, they’re not. There’s no point in the client saying to us, the agency, I want one person to lead everything, if the client has 25 disconnected buyers.