News & Views

Opinion / It Pays to be Paranoid

by Contagious Team

Sir Martin Sorrell, CEO of WPP, tells Alex Jenkins why short-term thinking and an unwillingness to change are obstructing experimentation in the industry

This article originally appeared in Contagious X, Contagious' 10th anniversary edition. The issue is available to view online and as a free pdf download until 31 January.

At a conference in October this year you said that, in a complex environment, there is a real need for experimentation. Can you outline why?

There are two big shifts that are taking place – one is geographical and one is technological.

The geographical one is not that difficult to figure out. If sanctions are lifted in Iran, that will be a market that opens, just like in Myanmar or Vietnam. But trying to figure out the technology shift is much tougher.

When I look at WPP’s revenues, they’re more than 50% different than they were 14 years ago. Back then, digital was close to zero. It’s now 36% and in the next 14 years I’d say the shift will be even greater. Take Digital, Fast-growth Markets and Data, which are our three pillars along with Horizontality – getting people to work together. You have to get your existing, traditional businesses to move into those fast-growth markets and to adopt a digital frame of mind. You have to get your digital brands to look at the fast-growth markets as well as the mature markets. Then, finally, you have to be willing to dabble with different structures, to try different approaches, eg 51% control, 20% associate interests, to make investments and to morph new models – which is what we did with [NYC-based ad tech company] AppNexus.

We’re a substantial company, the largest in our sector, but not large in a general sense. We don’t have unlimited resources and neither would I want to take the risk of paying some of the valuations that we see in the internet space. With AppNexus, a private company, we injected some revenue in return for equity and then topped up our stake to 15% with some cash.

This is, I think, a less risky, more considered, approach than splashing out large sums of money. It’s educated risk.

As someone with a business background, how do you reconcile expenditure on an experimental approach, which almost inherently guarantees a level of failure?

Post-Lehman Brothers in particular, but even pre-Lehman, companies have become too conservative in a slow-growth world. They’re too focused on looking down at their shoes rather than at the horizon, not focused enough on top-line growth. We can’t survive by just cutting costs, particularly in professional services. So we have to find the geographical pockets, the digital pockets, the data pockets and then win business by working together. Those are the four strategic pillars that are the most effective.

So your advice for the head of a brand or agency, for whom the bottom line is going to loom large, is to take a longer-term view and explore those pockets?

The long-term view is absolutely critical. I think there’s too much of a short-term view. The rise of financial procurement has made people focus too much on costs, lack of pricing power, slower global growth. The average tenure of a CEO is five years, the CMO in America is two years, and the CFO in America is three years. These are short lifespans and not long enough to implement strong strategic change.

Do you think that misaligns their incentives? If you’re only in a role three years, you’re only going to take a three-year view?

I think that’s part of it. I think boards are naturally conservative. It’s all far too short term.

The biggest problem is unwillingness to change. The attitude of ‘why should I change when that change may not affect me?’ is the attitude you have to get over. It’s getting people to think long term and not look at their navels but at the horizon. It’s very easy to say, but very tough to do.

Having been at this for a long time, I think we’re probably more focused on the long term. So experimentation is really vital, particularly in a world that is moving at the speed that it is.

How do you balance a culture of experimentation with a company’s ability to focus?

You have to continuously think about how things are going to change and how they might change. I think you probably have to be more experimental even if it takes your eye off the focus ball. You have to multitask, exactly the same as with new technologies. You have to watch television on the screen, play with your iPad, play with your smartphone, tweet and there’s also the society bit as well.

Do you think that the ad industry has sufficiently embraced experimentation?

A few years ago, we were going to get destroyed by Google. A few years ago, we were going to get destroyed by the recession. We managed to survive both. It doesn’t mean that we will be able to survive in the future. It pays to be paranoid as Andy Grove [former CEO of Intel] pointed out many years ago. Now, I think it pays to be more and more paranoid, because of the speed of change. You have to be Einstein to figure out some of the technological changes that are going on. If you were a hotel owner, did you think you would be subject to what’s happened recently with Airbnb? If you were a taxi driver, did you think you would have to deal with Uber?

When you have a legacy or a traditional business, you change the engines on the airplane while it’s flying, which is particularly difficult when you have new, disruptive business models that are evaluated in different ways and attracting talent and capital on different terms.

This is not a problem for the ad industry in particular, it’s a problem for everyone.