Forrester: ‘WPP must dissolve its agency brands’
WPP needs to ‘dissolve’ its hundreds of agency brands into just dozens to better serve today’s chief marketing officers, according to the analyst Forrester.
Its latest report urges the world’s largest marcomms holding company to merge the bulk of its individual agencies “to meet the CMO’s need for simplicity, accountability and scale”.
WPP’s media agencies “should operate as a single GroupM”, it recommends, and its creative agencies “should consolidate within the seven global networks of AKQA, Grey, JWT, Ogilvy, VML, Wunderman and Y&R”.
WPP owns hundreds of individual agency brands
Titled ‘Agency Holding Companies Need a Brave New Business Model’, the provocative report has flown somewhat under the radar since its publication last week.
It contends that WPP and its holding company counterparts are facing an “existential threat” and need to radically restructure themselves to survive.
Authors Jay Pattisall and Ted Schadler write that “of all the holding companies, WPP has the most burning platform for change” and say the agency behemoth “will either consolidate itself or be forcibly taken over by someone who will”.
They warn: “The economic opportunity facing WPP is too massive for a private equity group to ignore. In classic Wall Street style, where the goal is unlocking value, an investor like Blackstone or Bain will swoop in and restructure the agency before spinning out the high-value assets to the highest bidders.”
The report details several “forces” bringing the holding company model “under attack”. Among them: CMOs advancing in-house agencies; consultancies ascending on high-margin marketing services and CMOs looking to aggressively manage costs, especially media.
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Its thesis is that today's "under pressure" CMOs "want fewer agency relationships that can solve bigger problems" – but the archetypal holding company structure is not designed for this challenge.
One issue, it argues, is that clients can't cherry-pick the best talent for their needs because they can only select from rigid agency silos. Another problem, it says, is that individual P&Ls get in the way of peer agencies collaborating for a client's greater good. "The P&Ls and compensation structures of today’s agency networks reduce the opportunity to tackle a client’s bigger problems," the report says.
WPP contests some of Forrester's assertions. Its joint chief operating officer, Mark Read, told The Drum that its structure was already more streamlined than the report portrays.
“Group M is one company and the media agencies have been within Group M for a number of years," he said. "We bring scale together in data, in technology, in buying, but we leave the agencies separate to manage our clients. I think that's the right structure.”
Read did acknowledge, however, that WPP needs to have fewer individual P&Ls.
“We need to create a culture where we can collaborate around clients. I don't think one P&L is by definition the single answer to that problem. It's really about the right mix of culture, incentives, the types of people you hire, and the way you measure and reward their performance. It’s not just a simple case of one P&L.
“We need to have probably fewer P&Ls. We need to make sure that each of our companies is well positioned to succeed in the future. Those are the things we're working on."
While some analysts have predicted the break-up of marketing's holding companies like WPP, Forrester's takeaway is that their role will actually become more important.
The report says: "As global CMOs look for marketing partners, holding company services will become vital resources for global growth and execution. Consequently, CMOs will select the holding company services they need and rely on global client teams to select and manage the agency resources across markets, campaigns, and projects.
"As this becomes more common, Dentsu Aegis Network, Havas Group, and Publicis Groupe will have the advantage of a single global brand; the remaining holding companies will come under pressure to further consolidate their agency brands."
WPP looked to be on course for such aggressive consolidation this year until its chief executive Sir Martin Sorrell resigned in contentious circumstances in April.
He promised to ramp up the "simplification" of the group's structure following a lacklustre earnings report in March, but his shock exit one month later put paid to that plan.
Since stepping into Sorrell's shoes, former Wunderman chief Read has been considerably more circumspect on the subject of consolidation, playing down the possibility of more mergers this year. WPP has even gone so far as to "retire" the use of its erstwhile boss's buzzword "horizontality".