WPP’s CEO on Turning a Portfolio of Companies Into a Growth Machine

WPP’s CEO on Turning a Portfolio of Companies Into a Growth Machine


Tony Luong



Early in 1992 I went to the London headquarters of J.P. Morgan, which at that time was housed in a converted school building. I felt as if I were being called into the headmaster’s office. I was there to see WPP’s bankers, and they weren’t happy. Two years earlier we’d borrowed to make a giant acquisition; soon afterward, a global recession hit, and we struggled to make our debt payments. I had to meet with the bankers each quarter; they’d go over all our expenses and question our approach. Out of that near-death experience was born the strategy that has driven our growth for the past 25 years.

WPP is now the world’s largest advertising and marketing services company, with 190,000 employees in 3,000 offices in 112 countries. Particularly in our early years, we grew primarily by acquiring smaller firms—even today some people think of WPP as a holding company. In truth, many of our acquisitions enjoy autonomy, and some might be happy if we operated on the Berkshire Hathaway model, as hands-off owners in a decentralized organization. But as I sorted through our financial crisis in the early 1990s, I realized that making acquisitions and trying to grow into a very large company was pointless without a cohesive strategy. Unlike Berkshire’s, all our acquisitions are in the same industry. We needed to find a way to make one plus one equal more than two—to leverage our size for competitive advantage. That was the only way we could add value.

The crisis led us to reorganize around a new strategy for growth. We began to centralize certain corporate functions—talent management, finance, IT, real estate, legal—to provide coordination and keep down costs. We also began to create what we now call “horizontality,” giving clients access to resources across our various agencies, which helped us win new business. Managing our portfolio this way allowed the agencies to focus on doing what they do best and gave top managers room to develop strategies to grow in digital markets, fast-growth markets, and new fields such as data investment management, which have become big sources of growth over the past decade.

The Path to Advertising

I was born in northwest London. I had a brother who died at birth, so I was raised as the only child of first-generation Jewish parents, whose families came from Eastern Europe. My mother and father had a hard but warm early life. My father left school when he was 13. He eventually managed one of England’s largest television and radio retail chains. I had a very good private school education and then studied economics at Cambridge. I went straight from Cambridge to Harvard Business School, and I loved it—it was two years in a pressure cooker, doing three case studies a day and learning to think like a CEO.

After business school I spent two years working for a consulting firm in Connecticut. This was at the height of the Vietnam War, and the U.S. government was starting to draft young men who weren’t citizens but were working here, so my mother insisted that I return to England. I’d met Mark McCormack, the sports agent who founded IMG, when he spoke at Harvard, and he hired me to open an IMG office in London. After a few years I left to try to start a company with my dad, who was my closest adviser and mentor at that time. We didn’t find a business that made sense, so I signed on as a financial adviser to a very successful businessman. One of the companies he’d invested in was an ad agency, and the Saatchi brothers had merged with that agency. They needed a CFO, so in 1976 I went to work for them.

I spent nine years at Saatchi & Saatchi. Charles and Maurice were very creative, but they didn’t have much business discipline—something that’s vital if you’re trying to grow through mergers and acquisitions, as they were. Their expense structure was a mess, and we worked to rationalize it. People tend to think that advertising agencies succeed or fail on creativity alone, but financial control is equally essential. From watching the Saatchis, I began to learn how to create a clear strategy and a vision.

In all these early jobs, I was working closely with and learning from very good entrepreneurs. My father had always told me that I needed to build a reputation in an industry before going out on my own. By 1985 I was 40 years old, I had a $2 million stake in Saatchi & Saatchi, and I had built the reputation I needed.

Early Acquisitions

With help from a stockbroker, I looked for a small, publicly traded business that I could take over as a shell company and grow by acquisitions into a major global marketing organization. We settled on Wire and Plastic Products (WPP), which made shopping carts, among other items. It was worth about $1.3 million at the time. By coincidence, one of its advisers had worked with the Saatchis, and he knew the work I’d done for them. He recommended that the owners of WPP go along with my plan, which they did. On the day our stake in the company was announced, the share price jumped by more than a third, largely on the basis of my reputation.

In our first two years we made 18 acquisitions. We focused on firms specializing in what are called “below the line” marketing functions. In advertising, “above the line” is the sexy, creative, Don Draper stuff. Below the line is the unfancy, unsexy stuff—packaging, design, promotions. Below-the-line agencies never get much attention, but they can be good businesses. We bought 15 of them in the UK and three in the United States, using mostly our shares as financing, and became the largest player on either side of the Atlantic. The stock market liked our strategy, and our market cap kept growing.

In 1987 we made a bid for J. Walter Thompson, which owned two large ad agencies and a public relations firm. On a revenue basis, it was 13 times our size. WPP was worth about $250 million, and we offered $566 million for JWT, paying half cash, half stock. The deal put us into debt, but I thought it was a no-brainer. A piece of good fortune in this deal was that JWT owned its building in Tokyo, and Japan was in the middle of a property boom. We sold the building for $100 million and immediately paid back nearly half of what we’d borrowed to make the acquisition.

Below-the-line agencies can be good businesses. We bought 18 of them.

Two years later we acquired Ogilvy & Mather in an even bigger deal, one worth $850 million. We paid half in cash, half in convertible preferred stock. The stock required us to make payments every quarter, and when the economy went into recession, we discovered that we were overleveraged. We never missed a payment, but we came very close. We renegotiated our debt. It was a come-to-Jesus moment, and it forced me to reconsider what we needed to do to fuel our growth.

Talent and Real Estate

That brush with oblivion made us take a hard look at the organization. We came to the conclusion that we needed to justify the parent company’s existence; otherwise it would only make sense to split up the business.

As we thought about how to add value, we focused on our investments. Today about 60% of WPP’s revenue is invested in people—the same share as in the 1990s. Our second biggest investment, then and now, has been in property around the world. (In the 1990s it was about 10%; today it’s approximately 7%.) We also looked for common approaches to procurement and IT software and hardware.

In this industry there were no training programs. When a company needed to hire, it “nicked” someone from a competitor. We saw that talent management was one area in which the parent company could add value for our operating companies. In 1995 we launched a fellowship program in which WPP recruits and mentors undergraduates and graduate students and rotates them among the companies, with the goal of developing our own multidisciplinary talent. The program is regarded as the industry’s gold standard and is harder to get into than Harvard Business School.





After trying various compensation schemes, we laid the groundwork for the Leadership Equity Acquisition Plan. Under LEAP, top operating and parent company executives are offered an opportunity to invest their own money in WPP shares and are paid out a multiple of that investment over a number of years—if WPP’s share price outperforms its peer group. That way our people put their own skin in the game.

WPP has launched a number of programs to cultivate and retain talent. For example, The X Factor is designed to develop female leaders and prepare them for even higher positions at WPP operating companies. And our Worldwide Ownership Plan has given share options to more than 84,500 employees to encourage taking a literal stake in the company.

In 1996 we launched the WPP Space Program as a real estate management process. Its natural culmination has been the opening of large-scale “campuses” in Singapore, Shanghai, and soon Madrid. We have smaller colocations of operating companies in multiple markets throughout the world. This not only reduces costs but also brings people into closer physical contact and enables collaboration.

We’ve sought to add value in a number of other areas as well. WPP hired its first procurement person more than 20 years ago and now has a department that is tasked with efficiently buying goods and services for our portfolio companies. In IT we’ve looked at standardizing hardware and software across the group, culminating in an outsourcing agreement with IBM. And we’ve established client practice areas in which companies can share knowledge and pool resources: the Store (our global retail practice), WPP Digital (to accelerate digital development in group companies), our government and public sector practice, and others.

Digital today accounts for as much as 40% of our revenue.

At first some of our agencies resisted these changes. They had competed against one another fiercely for accounts, and it made sense that they wanted to retain their identities. In the 1990s, for instance, employees were upset because the New York offices of JWT and Ogilvy were going to have the same telephone exchange (the first three digits of a local number), which might confuse clients and the public. But we’ve moved on from that. And agencies used to think that running their own IT systems gave them a competitive advantage, but now they realize that they’re better off letting us leverage our scale.

The Lure of “Horizontality”

This more centralized structure has allowed us to focus on the issues that will truly drive strategic growth in the 21st century. One of those is global expansion. We were very early among marketing services companies to think about the BRIC countries. By 2000 about 12% of our revenue was coming from Brazil, Russia, India, and China. Today nearly a third comes from what we call fast-growth economies, and we have offices from Colombia to Bangladesh. We are considering what the opening of Cuba will mean to the business, and we help our agencies plan for growth in new markets.

We’ve also helped them navigate the shift to digital markets. More than 20 years ago it became clear that Moore’s law was going to affect our industry. Depending on how one defines it, digital today accounts for as much as 40% of our revenue; someday that will probably be 100%. Here, too, we’ve used our size to find advantages. For instance, WPP’s group includes market research and insight firms (what we now call data investment management firms), whose capabilities have become increasingly important as targeting individual consumers has become easier. In 2007 we bought 24/7 Real Media. It merged with our programmatic platform Xaxis, which, boosted by a partnership with AppNexus, has become a key competitor to Google’s DoubleClick and Facebook’s Atlas.

The other big shift in our organizational structure came from our effort to create horizontality, which began in the 1990s but has accelerated over the past decade. We recognized that our largest clients don’t necessarily want to choose a single agency; they want access to the best talent and ideas from across the group. So for each of our top 45 clients, we have one executive who manages the relationship and taps resources from a variety of agencies. For Ford Motor Company, for instance, we’ve essentially created an agency within WPP—one that draws not only on ad agencies such as JWT, Ogilvy, and Y&R, but also on public relations people at Burson-Marsteller and Hill+Knowlton, and on market researchers and data specialists at Kantar. We do the same thing for Colgate and many others. Today about 38,000 WPP employees work for these very large accounts, which together make up $7 billion of our business.

Finding ways to better serve our clients has been particularly important in the current economic environment. Some of those clients are facing disruption by upstarts such as Airbnb and Uber. Others have been bought by private equity firms, which implement zero-based budgeting and scrutinize marketing spend. A squeeze comes from activist investors as well. A CEO’s tenure may average five or six years, but chief marketing officers are averaging only 24 months. Management is focused on the short term and is cutting back on R&D and advertising, which are long-term investments. I agree with Dominic Barton, of McKinsey, and Larry Fink, of BlackRock, who argue that this is misguided. But it’s a powerful trend, and we’ve had to adapt. By offering our biggest clients access to a broad range of resources across WPP, we can grow our business in an industry with limited top-line growth.

When I think back on my 30-plus years of running WPP, I’m aware that luck has played a part in our success. I’m also aware that whoever succeeds me will do things differently—probably better than I’ve done. When I first invested in this company, I took a gamble with my $325,000. Today WPP is worth $30 billion, and I own 2% of it. The only time I ever sold shares was to fund my divorce, so all my wealth is tied up in WPP. That’s the way I like it.

Being entrepreneurial means taking a risk with your own money, not somebody else’s, so it’s important to me that I put my assets on the line. Wealth managers think that’s crazy, but my dad always told me to invest in the thing I know best. For me, that’s the company I’ve built over three decades.


[Harvard Business Review]

June 22, 2016 / by / in , , ,

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