What's next for WPP after Sorrell?

The departure of Sir Martin Sorrell from WPP, a company he was associated with for over three decades was met with shock and the future of WPP looked uncertain as Roberto Quarta, Chairman of WPP assumed the position of Executive Chairman tentatively. Bindu Balakrishnan, Country Head India, DCMN attempts to decipher what lies ahead for the future of WPP, and the repercussions of Sorrell stepping down.

Sir Martin Sorrell is considered by many to be the godfather of the modern advertising industry, but in a shocking move on April 14th, the WPP board announced that 73-year-old Sorrell would resign after 33 years as CEO. It is a sign of turning events for the agency business as a whole and comes at a time where there is general unrest in the advertising industry, as big agencies experience some of their lowest revenue growth in years. These revenues are being eaten by digital stalwarts like Facebook and Google, as technology driven ad players are much better positioned to capitalize on current business environment changes than agency dinosaurs.

Also Read: Sir Martin Sorrell, Chief Executive Officer WPP, steps down

Sorrell started WPP in the early 1980s. In those times, elaborate television campaigns ruled the roost. Over the past 30 years, WPP has grown to be the clear industry leader, with over 200,000 employees who serve a myriad of roles in advertising, media buying, branding and data analytics from more than 3000 offices and 400 separate companies as a result of aggressive acquisitions. After several years of strong organic growth, things slowed down considerably at WPP in 2017 and its share price has tumbled almost 40 percent in the last year to its lowest point since 2013.

Declining Margins

Many factors have contributed to this decline, one of which is that the traditional business model for large network agencies like WPP is about locking clients into long term relationships via huge contracts, but this discount-driven, media buying at scale strategy is no longer sustainable as data driven, one-to-one marketing is the more effective approach in the industry these days.

Rise of Online Giants

Another challenge WPP and other agencies of a similar kind face is the weight of Google and Facebook, which allows brands to buy directly from them, leaving less room for middlemen.  According to an ANA report from December 2017, 35 percent of companies have moved their programmatic ad buying away from media agencies. This issue not only affects digital advertising but is also trickling into offline media as well. This shift became clear when the world's largest advertiser, Procter & Gamble, announced in January that it would take on more of its own advertising purchasing internally to cut agency costs.

Challenges Ahead for WPP

It is during these challenging times that the announcement of Sir Martin Sorrell’s departure has hit the headlines. There are mixed reactions and varying opinions about the impact of his exit.  While some people feel liberated, others agree that he was a very well-known and influential figure and had strong relationship with WPP’s key clients.

His resignation will certainly impact WPP’s relationship with multiple large clients. Ford has already announced that it has put their contract in review, while other clients like HSBC, Royal Dutch Shell and Mars have said that they are considering this too. Without Sorrell to cajole clients into keeping their business with WPP, investors and creditors are worried. WPP shares dropped by nearly 7 percent on the Monday after the announcement of his resignation and popular outlook on the firm fell from “stable” to “negative.”

In India alone, WPP currently has a 50 percent market share and employs about 8,000 professionals. Yet due to its large size, many of WPP’s subsidiaries in India run independently. The departure of Sorrell could very well be the beginning of a huge strategy shift in India, with the biggest risk being that his exit could trigger the breakup of WPP into smaller units, including its Indian businesses.

What next?

The biggest task for the next CEO of WPP will be to refine WPP’s strategy as it is battling challenges like declining ad spend and the threat of web giants like Google and Facebook cutting out agency middlemen. To survive in the current advertising market, WPP will need to become leaner and more agile, and able to serve clients at even more competitive rates.

For now, the whole world has its eyes trained on WPP to see what the impact will be of Sir Martin Sorrell’s exit. Only time will tell where they go from here.