Protecting not transforming: Michael Roth's roadmap for IPG

Michael Roth: on a path of protection, not transformation

Unlike rivals Publicis and WPP, IPG is not interested in overhauling its business model. Instead, Michael Roth is setting out a plan of protection for the holding company – a network that is banking on both a fresh data offering and the long-enforced cohesion of its agency brands to compete in uncertain times.

First things first: yes, Michael Roth has a succession plan; “of course” he does. He doesn’t want “what happened at WPP” – the omnishambles of Sir Martin Sorrell’s exit – to happen at IPG.

He’s had an exit strategy since he took on the chief executive role in 2005. It’s changed since then, although “the core individuals in the tribe are still here and they're on the chart”. He’s setting his retirement date at any point between tomorrow and the year 2029, although it will be closer to the former than the latter.

He won’t say any more on one of the most pondered questions in ad land. Right now, he’s got a business to protect. But unlike other holding groups, he doesn’t believe it needs to be transformed. He took care of any critical overhauls when he joined, he says, at a time when IPG experienced its own private financial crash three years before the recession hit the rest of the world.

“We had to reposition everything,” he recalls. “We had to get rid of non-strategic assets. We had to fix the financial controls and at the same time, we had to service our existing clients and invest in our people.

"[We did] all the things that everyone else is doing now.”

So when Roth sees Publicis decreeing the ‘Power of One’ or WPP folding digital expertise into its creative shops, he’s nothing but amused (“We merged Draft and FCB years ago – we were the first ones to do that – you don't read about that!”)

His 00s strategy turned IPG from a flailing, sprawling business into the fourth largest advertising company in the world – one that Brian Wieser upgraded from a ‘hold’ to a ‘buy’ rating just last month.

'I have the pencil and the eraser'

The analyst (who has since joined WPP's Group M) was on the money: on today’s year-end earnings call, the board raised quarterly dividend by 12%, following a solid year of organic growth totalling 5.5%.

Comparatively, Omnicom’s organic growth for the same period was posted at 3.2% and Publicis’ at 0.8%. The latter also saw US organic growth drop 0.8%, attributed to a spending slump in US FMCG clients; conversely, IPG reported US organic growth of 5.1% and, remarkably, an increase in revenue from FMCG clients (Roth fairly notes the sector forms a smaller part of the business (8%) than it does for other holding companies but – “hey, I’ll take credit for it!")

Nevertheless, just like Publicis’ Arthur Sadoun, Roth is a chief executive who still believes in the value of agency brands. He’s noted that clients speak to him about “McCann, FCB, MullenLowe ... UM” and not IPG as an entity, and for that reason, among others, the elimination of these brands would be a mistake.

He's been protecting the portfolio since he first took the top job with “open architecture”, a concept that allows clients to bring IPG’s entire resource into their account, if they so wish. On an investor call today (13 February), he described it as a “long-established hybrid approach” that integrates "the best of our talent across the organization by means of customized client teams".

Of course, this sounds almost entirely like WPP’s sought-after “horizontality” in the last of the Sorrell years, and Sadoun’s ‘Power of One’ mantra that Roth finds so ironic. But after 14 years, he believes he’s got it sussed. The key is not in company mission statements, he says – it’s in his chequebook.

“We basically compensate [agencies] on it ... as part of their objectives, they have to work well and play well with others,” he explains. “And, candidly, I have the pencil and the eraser. What that means is if agency A and agency B are working on a client, it's a single P&L, and I can decide, obviously, who gets credit for the work. If for some reason the accounting doesn't work out with the way the actual performance has, then we adjust ... those who carry the weight get compensated versus those who don't.

“It's all accounting. All of this is accounting.”

The futureproofing shopping list

IPG has weathered one financial crisis already and Roth believes he can shelter it from any others. Organic growth was strong across all markets in 2018, particularly in the two regions facing the biggest political and economic upsets in 2019 – Latin America (11.7%) and the UK (9.7%). Brexit uncertainty has, so far, not affected business “to any extent”. And while other companies are looking to China in search for expansion, Roth sees more potential in India.

The most significant growth area for IPG, however, is Acxiom – the data house purchased in October 2018. Much like Sadoun is banking on Sapient’s business transformation offering to boost the wider group’s prospects, Roth believes this "signature investment" will be what futureproofs IPG in the face of four headline changes in the industry: in-housing, the emergence of consultancies, changing consumer media habits and clients working directly with digital platforms.

So far he’s been disciplined and measured with Acxiom's integration into the wider company, noting that “if we turned everyone loose on [them], it would overwhelm them”. Media has first dibs before creative, for instance, and Roth notes that “the integration isn't just IPG clients into Acxiom – the integration is also the Acxiom clients into IPG”.

There’s further M&A on the cards in 2019, as well as heavier investment in digital talent and capabilities across both its ‘digital’ shops and other agencies. And, again like Publicis, IPG is looking to bolster its business transformation offering, particularly within the likes of Huge, MRM, R/GA and MullenLowe Profero.

“Business transformation projects [have been] very well received,” he told investors. “Our goal is now not only to win the project part but to expand our relationship as a result of that.”

The move is perhaps indicative of IPG’s longer-term concerns regarding consultancies’ dominance in the marketing space. It will also protect the group from any future spending setbacks that will no doubt one day hit its FMCG business, particularly as Amazon continues to cannibalize ad budgets going forward.

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