Advertising is under pressure and holding companies must transform themselves drastically if they are to remain fit for purpose, according to Publicis Groupe boss Arthur Sadoun.
His rival Sir Martin Sorrell’s shock exit from the helm of WPP has led some analysts to speculate that the once all-powerful agency conglomerates are now ripe for being broken up.
But Sadoun told The Drum that his counterparts should have been rethinking their models long before the Sorrell saga stunned the industry.
“Nobody should’ve waited to see what has happened at WPP to realise that yes, holding companies need to transform drastically,” he said.
“There will be a change and holding companies, as they are structured [now], won’t be able to make it.
“It’s normal – look at the market. Everything has changed around us. The consumer has changed, the media landscape has changed, our clients have changed. Of course we need to change the way we operate.”
Sadoun’s 10 months as chief executive of the world’s third largest communications business have coincided with profound upheaval in the media and marketing industries.
He may have seen one of his biggest competitors vanquished in Sorrell, but he has also had to contend with clients such as Procter & Gamble demanding a redrawing of the agency landscape and the digital advertising industry upon which Publicis and its peers depend facing enormous scrutiny over issues of brand safety and value.
“In the broader sense, I’m including the media, the platforms, the agencies, and also the system integrators like Accenture, there will be a reconfiguration of our business, of our industry,” he said. “It can’t stay as it is. Things will move.”
Sadoun was speaking to The Drum in the wake of the group’s first quarter trading update, which despite the much-publicised pressures facing the agency business, told the story of a “satisfying” start to the year for his Paris-based behemoth.
Publicis Groupe’s net revenue grew organically by 1.6% to €2.1bn, with its bottom line buoyed by an impressive run of global client wins including Mercedes Benz, Carrefour, Campbell’s and Marriott.
This “busy but good quarter”, as Sadoun put it, represented a marked improvement on the same period last year when the group reported a net organic loss of 1.2%.
Sadoun described the pleasing performance as a validation of his firm’s own transformation plan, which has so far seen it build four ‘solutions hubs’, establish the ‘Power of One’ model to simplify its multitude of services into a one-stop-shop for clients and position its Publicis.Sapient consulting arm as a partner for businesses working through their own growing pains.
“The model is resonating everywhere because every one of our clients knows they have to transform,” he said. “They have roughly all the same problem by the way – low growth, a necessity to cut costs and brand trust. The only way to get out of that and to find the kind of profitable growth they need is to transform.
“You can’t pitch all your life. We had to do a big effort when I came on board because it was important to demonstrate to the market that we had the right model and that we were preparing the growth for tomorrow.
“We believe we are the right place in terms of offer. Now our question is, how can we scale that fast by transforming Publicis?”
Sadoun’s masterplan to do that is dubbed ‘Sprint to the Future’, a three-year pursuit of cost savings and “bolt-on” acquisitions to increase the company’s operating margin rate by “30 to 50 basis points” every year until 2020.
A warchest of between €300m to €500m annually has been set aside for acquisitions of specialists in “data, dynamic creativity and digital business transformation”, but Sadoun insisted he would not be held to ransom when it comes to making deals.
“If we have ways to add more talent and expertise to accelerate our growth we will; if we don’t, we don’t.
“But we won’t be ready to pay a very high price because we don’t need a transformative acquisition; we need small acquisitions to accelerate our growth and profits on a model that is already defined.”
As he approaches his first anniversary in the hotseat, Sadoun is preparing to take the wraps off the long-awaited artificial intelligence platform Marcel, which he said was part of the group’s plan to shift “from a holding company to a platform”.
What that really means in practice will become clearer on 24 May at a three-day seminar in Paris which Sadoun described as the company’s “replacement” for Cannes Lions this year and will be attended by 450 of the group’s top managers.
Sadoun was just three weeks into his role last June when he announced – during Cannes Lions, no less – that all his agencies would be taking a year out from the soiree in the south of France and all other awards schemes to instead invest the entry fees and attendance costs into building Marcel.
One of his first major decisions in post, it rocked the organisers of Cannes Lions and was lampooned in some quarters of the industry as a folly.
But a year on, Sadoun believes the decision has already been vindicated.
“I remember that when I said we will launch Marcel, a lot of people said, ‘ah he’s not going to Cannes, he’s going to launch Marcel’,” he said faux-mockingly.
“My feeling is that people now are starting to understand that the priority at this stage is to focus on the transformation of the group, because – by the way – this is the only way 80,000 people will progress.”